Loans in General – Articles 1933-1934, Art 1305; 1318
G.R. No. L-19190 November 29, 1922
THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellee,
vs.
VENANCIO CONCEPCION, defendant-appellant.
MALCOLM, J.:
By telegrams and a letter of confirmation to the manager of the
Aparri branch of the Philippine National Bank, Venancio
Concepcion, President of the Philippine National Bank, between
April 10, 1919, and May 7, 1919, authorized an extension of credit in
favor of "Puno y Concepcion, S. en C." in the amount of P300,000.
This special authorization was essential in view of the memorandum
order of President Concepcion dated May 17, 1918, limiting the
discretional power of the local manager at Aparri, Cagayan, to grant
loans and discount negotiable documents to P5,000, which, in certain
cases, could be increased to P10,000. Pursuant to this authorization,
credit aggregating P300,000, was granted the firm of "Puno y
Concepcion, S. en C.," the only security required consisting of six
demand notes. The notes, together with the interest, were taken up
and paid by July 17, 1919.
"Puno y Concepcion, S. en C." was a copartnership capitalized at
P100,000. Anacleto Concepcion contributed P5,000; Clara Vda. de
Concepcion, P5,000; Miguel S. Concepcion, P20,000; Clemente Puno,
P20,000; and Rosario San Agustin, "casada con Gral. Venancio
Concepcion," P50,000. Member Miguel S. Concepcion was the
administrator of the company.
On the facts recounted, Venancio Concepcion, as President of the
Philippine National Bank and as member of the board of directors of
this bank, was charged in the Court of First Instance of Cagayan with
a violation of section 35 of Act No. 2747. He was found guilty by the
Honorable Enrique V. Filamor, Judge of First Instance, and was
sentenced to imprisonment for one year and six months, to pay a
fine of P3,000, with subsidiary imprisonment in case of insolvency,
and the costs.
Section 35 of Act No. 2747, effective on February 20, 1918, just
mentioned, to which reference must hereafter repeatedly be made,
reads as follows: "The National Bank shall not, directly or indirectly,
grant loans to any of the members of the board of directors of the
bank nor to agents of the branch banks." Section 49 of the same Act
provides: "Any person who shall violate any of the provisions of this
Act shall be punished by a fine not to exceed ten thousand pesos, or
by imprisonment not to exceed five years, or by both such fine and
imprisonment." These two sections were in effect in 1919 when the
alleged unlawful acts took place, but were repealed by Act No. 2938,
approved on January 30, 1921.
Counsel for the defense assign ten errors as having been committed
by the trial court. These errors they have argued adroitly and
exhaustively in their printed brief, and again in oral argument.
Attorney-General Villa-Real, in an exceptionally accurate and
comprehensive brief, answers the proposition of appellant one by
one.
The question presented are reduced to their simplest elements in the
opinion which follows:
I. Was the granting of a credit of P300,000 to the copartnership "Puno
y Concepcion, S. en C." by Venancio Concepcion, President of the
Philippine National Bank, a "loan" within the meaning of section 35
of Act No. 2747?
Counsel argue that the documents of record do not prove that
authority to make a loan was given, but only show the concession of
a credit. In this statement of fact, counsel is correct, for the exhibits in
question speak of a "credito" (credit) and not of a " prestamo" (loan).
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Loans in General – Articles 1933-1934, Art 1305; 1318
The "credit" of an individual means his ability to borrow money by
virtue of the confidence or trust reposed by a lender that he will pay
what he may promise. (Donnell vs. Jones [1848], 13 Ala., 490;
Bouvier's Law Dictionary.) A "loan" means the delivery by one party
and the receipt by the other party of a given sum of money, upon an
agreement, express or implied, to repay the sum loaned, with or
without interest. (Payne vs. Gardiner [1864], 29 N. Y., 146, 167.) The
concession of a "credit" necessarily involves the granting of "loans"
up to the limit of the amount fixed in the "credit,"
II. Was the granting of a credit of P300,000 to the copartnership
"Puno y Concepcion, S. en C.," by Venancio Concepcion, President of
the Philippine National Bank, a "loan" or a "discount"?
Counsel argue that while section 35 of Act No. 2747 prohibits the
granting of a "loan," it does not prohibit what is commonly known as
a "discount."
In a letter dated August 7, 1916, H. Parker Willis, then President of
the National Bank, inquired of the Insular Auditor whether section
37 of Act No. 2612 was intended to apply to discounts as well as to
loans. The ruling of the Acting Insular Auditor, dated August 11,
1916, was to the effect that said section referred to loans alone, and
placed no restriction upon discount transactions. It becomes
material, therefore, to discover the distinction between a "loan" and a
"discount," and to ascertain if the instant transaction comes under
the first or the latter denomination.
Discounts are favored by bankers because of their liquid nature,
growing, as they do, out of an actual, live, transaction. But in its last
analysis, to discount a paper is only a mode of loaning money, with,
however, these distinctions: (1) In a discount, interest is deducted in
advance, while in a loan, interest is taken at the expiration of a credit;
(2) a discount is always on double-name paper; a loan is generally on
single-name paper.
Conceding, without deciding, that, as ruled by the Insular Auditor,
the law covers loans and not discounts, yet the conclusion is
inevitable that the demand notes signed by the firm "Puno y
Concepcion, S. en C." were not discount paper but were mere
evidences of indebtedness, because (1) interest was not deducted
from the face of the notes, but was paid when the notes fell due; and
(2) they were single-name and not double-name paper.
The facts of the instant case having relation to this phase of the
argument are not essentially different from the facts in the
Binalbagan Estate case. Just as there it was declared that the
operations constituted a loan and not a discount, so should we here
lay down the same ruling.
III. Was the granting of a credit of P300,000 to the copartnership,
"Puno y Concepcion, S. en C." by Venancio Concepcion, President of
the Philippine National Bank, an "indirect loan" within the meaning
of section 35 of Act No. 2747?
Counsel argue that a loan to the partnership "Puno y Concepcion, S.
en C." was not an "indirect loan." In this connection, it should be
recalled that the wife of the defendant held one-half of the capital of
this partnership.
In the interpretation and construction of statutes, the primary rule is
to ascertain and give effect to the intention of the Legislature. In this
instance, the purpose of the Legislature is plainly to erect a wall of
safety against temptation for a director of the bank. The prohibition
against indirect loans is a recognition of the familiar maxim that no
man may serve two masters — that where personal interest clashes
with fidelity to duty the latter almost always suffers. If, therefore, it
is shown that the husband is financially interested in the success or
failure of his wife's business venture, a loan to partnership of which
the wife of a director is a member, falls within the prohibition.
Various provisions of the Civil serve to establish the familiar
relationship called a conjugal partnership. (Articles 1315, 1393, 1401,
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Loans in General – Articles 1933-1934, Art 1305; 1318
1407, 1408, and 1412 can be specially noted.) A loan, therefore, to a
partnership of which the wife of a director of a bank is a member, is
an indirect loan to such director.
That it was the intention of the Legislature to prohibit exactly such
an occurrence is shown by the acknowledged fact that in this
instance the defendant was tempted to mingle his personal and
family affairs with his official duties, and to permit the loan P300,000
to a partnership of no established reputation and without asking for
collateral security.
In the case of Lester and Wife vs. Howard Bank ([1870], 33 Md., 558;
3 Am. Rep., 211), the Supreme Court of Maryland said:
What then was the purpose of the law when it declared that
no director or officer should borrow of the bank, and "if any
director," etc., "shall be convicted," etc., "of directly or
indirectly violating this section he shall be punished by fine
and imprisonment?" We say to protect the stockholders,
depositors and creditors of the bank, against the temptation
to which the directors and officers might be exposed, and the
power which as such they must necessarily possess in the
control and management of the bank, and the legislature
unwilling to rely upon the implied understanding that in
assuming this relation they would not acquire any interest
hostile or adverse to the most exact and faithful discharge of
duty, declared in express terms that they should not borrow,
etc., of the bank.
In the case of People vs. Knapp ([1912], 206 N. Y., 373), relied upon in
the Binalbagan Estate decision, it was said:
We are of opinion the statute forbade the loan to his
copartnership firm as well as to himself directly. The loan
was made indirectly to him through his firm.
IV. Could Venancio Concepcion, President of the Philippine
National Bank, be convicted of a violation of section 35 of Act No.
2747 in relation with section 49 of the same Act, when these portions
of Act No. 2747 were repealed by Act No. 2938, prior to the finding
of the information and the rendition of the judgment?
As noted along toward the beginning of this opinion, section 49 of
Act No. 2747, in relation to section 35 of the same Act, provides a
punishment for any person who shall violate any of the provisions of
the Act. It is contended, however, by the appellant, that the repeal of
these sections of Act No. 2747 by Act No. 2938 has served to take
away the basis for criminal prosecution.
This same question has been previously submitted and has received
an answer adverse to such contention in the cases of United Stated vs.
Cuna ([1908], 12 Phil., 241); People vs. Concepcion ([1922], 43 Phil., 653);
and Ong Chang Wing and Kwong Fok vs. United States ([1910], 218
U. S., 272; 40 Phil., 1046). In other words, it has been the holding, and
it must again be the holding, that where an Act of the Legislature
which penalizes an offense, such repeals a former Act which
penalized the same offense, such repeal does not have the effect of
thereafter depriving the courts of jurisdiction to try, convict, and
sentenced offenders charged with violations of the old law.
V. Was the granting of a credit of P300,000 to the copartnership
"Puno y Concepcion, S. en C." by Venancio Concepcion, President of
the Philippine National Bank, in violation of section 35 of Act No.
2747, penalized by this law?
Counsel argue that since the prohibition contained in section 35 of
Act No. 2747 is on the bank, and since section 49 of said Act provides
a punishment not on the bank when it violates any provisions of the
law, but on a personviolating any provisions of the same, and
imposing imprisonment as a part of the penalty, the prohibition
contained in said section 35 is without penal sanction.lawph!l.net
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Loans in General – Articles 1933-1934, Art 1305; 1318
The answer is that when the corporation itself is forbidden to do an
act, the prohibition extends to the board of directors, and to each
director separately and individually. (People vs. Concepcion, supra.)
VI. Does the alleged good faith of Venancio Concepcion, President of
the Philippine National Bank, in extending the credit of P300,000 to
the copartnership "Puno y Concepcion, S. en C." constitute a legal
defense?
Counsel argue that if defendant committed the acts of which he was
convicted, it was because he was misled by rulings coming from the
Insular Auditor. It is furthermore stated that since the loans made to
the copartnership "Puno y Concepcion, S. en C." have been paid, no
loss has been suffered by the Philippine National Bank.
Neither argument, even if conceded to be true, is conclusive. Under
the statute which the defendant has violated, criminal intent is not
necessarily material. The doing of the inhibited act, inhibited on
account of public policy and public interest, constitutes the crime.
And, in this instance, as previously demonstrated, the acts of the
President of the Philippine National Bank do not fall within the
purview of the rulings of the Insular Auditor, even conceding that
such rulings have controlling effect.
Morse, in his work, Banks and Banking, section 125, says:
It is fraud for directors to secure by means of their trust, and
advantage not common to the other stockholders. The law
will not allow private profit from a trust, and will not listen
to any proof of honest intent.
JUDGMENT
On a review of the evidence of record, with reference to the decision
of the trial court, and the errors assigned by the appellant, and with
reference to previous decisions of this court on the same subject, we
are irresistibly led to the conclusion that no reversible error was
committed in the trial of this case, and that the defendant has been
proved guilty beyond a reasonable doubt of the crime charged in the
information. The penalty imposed by the trial judge falls within the
limits of the punitive provisions of the law.
Judgment is affirmed, with the costs of this instance against the
appellant. So ordered.
FACTS:
Defendant authorized an extension of credit in favor of
Concepcion, a co-partnership. Defendant’s wife was a
director of this co-partnership. Defendant was found guilty of violating
Sec. 35 of Act No. 2747 which says that “The National Bank shall not,
directly or indirectly, grant loans to any of the members of the Board of
Directors of the bank nor to agents of the branch banks.” This Section
was in effect in 1919 but was repealed in Act No. 2938 approved on
January 30, 1921.
ISSUE:
W/N Defendant can be convicted of violating Sections of Act No.
2747, which were repealed by Act No. 2938.
HELD:
In the interpretation and construction, the primary rule is to ascertain
and give effect to the intention of the Legislature. Section 49 in relation to
Sec. 25 of Act No. 2747 provides a punishment for any person who shall
violate any provisions of the Act. Defendant contends that the repeal of
these Sections by Act No. 2938 has served to take away basis for
criminal prosecution. The Court holds that where an act of
the Legislature which penalizes an offense repeals a former act which
penalized the same offense, such repeal does not have the
effect of thereafter depriving the Courts of jurisdiction to try, convict
and sentence offenders charged with violations of the old law.
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Loans in General – Articles 1933-1934, Art 1305; 1318
G.R. No. 160758 January 15, 2014
DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner,
vs.
GUARIÑA AGRICULTURAL AND REALTY DEVELOPMENT
CORPORATION, Respondent.
DECISION
BERSAMIN, J.:
The foreclosure of a mortgage prior to the mortgagor's default on the
principal obligation is premature, and should be undone for being
void and ineffectual. The mortgagee who has been meanwhile given
possession of the mortgaged property by virtue of a writ of
possession issued to it as the purchaser at the foreclosure sale may
be required to restore the possession of the property to the
mortgagor and to pay reasonable rent for the use of the property
during the intervening period.
The Case
In this appeal, Development Bank of the Philippines (DBP) seeks the
reversal of the adverse decision promulgated on March 26, 2003 in
C.A.-G.R. CV No. 59491,1 whereby the Court of Appeals (CA)
upheld the judgment rendered on January 6, 1998 2 by the Regional
Trial Court, Branch 25, in Iloilo City (RTC) annulling the extra-
judicial foreclosure of the real estate and chattel mortgages at the
instance of DBP because the debtor-mortgagor, Guariña Agricultural
and Realty Development Corporation (Guariña Corporation), had
not yet defaulted on its obligations in favor of DBP.
Antecedents
In July 1976, Guariña Corporation applied for a loan from DBP to
finance the development of its resort complex situated in Trapiche,
Oton, Iloilo. The loan, in the amount of ₱3,387,000.00, was approved
on August 5, 1976.3Guariña Corporation executed a promissory note
that would be due on November 3, 1988. 4 On October 5, 1976,
Guariña Corporation executed a real estate mortgage over several
real properties in favor of DBP as security for the repayment of the
loan. On May 17, 1977, Guariña Corporation executed a chattel
mortgage over the personal properties existing at the resort complex
and those yet to be acquired out of the proceeds of the loan, also to
secure the performance of the obligation.5 Prior to the release of the
loan, DBP required Guariña Corporation to put up a cash equity of
₱1,470,951.00 for the construction of the buildings and other
improvements on the resort complex.
The loan was released in several instalments, and Guariña
Corporation used the proceeds to defray the cost of additional
improvements in the resort complex. In all, the amount released
totalled ₱3,003,617.49, from which DBP withheld ₱148,102.98 as
interest.6
Guariña Corporation demanded the release of the balance of the
loan, but DBP refused. Instead, DBP directly paid some suppliers of
Guariña Corporation over the latter's objection. DBP found upon
inspection of the resort project, its developments and improvements
that Guariña Corporation had not completed the construction
works.7 In a letter dated February 27, 1978,8 and a telegram dated
June 9, 1978,9 DBP thus demanded that Guariña Corporation
expedite the completion of the project, and warned that it would
initiate foreclosure proceedings should Guariña Corporation not do
so.10
Unsatisfied with the non-action and objection of Guariña
Corporation, DBP initiated extrajudicial foreclosure proceedings. A
notice of foreclosure sale was sent to Guariña Corporation. The
notice was eventually published, leading the clients and patrons of
Guariña Corporation to think that its business operation had slowed
down, and that its resort had already closed.11
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Loans in General – Articles 1933-1934, Art 1305; 1318
On January 6, 1979, Guariña Corporation sued DBP in the RTC to
demand specific performance of the latter's obligations under the
loan agreement, and to stop the foreclosure of the mortgages (Civil
Case No. 12707).12However, DBP moved for the dismissal of the
complaint, stating that the mortgaged properties had already been
sold to satisfy the obligation of Guariña Corporation at a public
auction held on January 15, 1979 at the Costa Mario Resort Beach
Resort in Oton, Iloilo.13 Due to this, Guariña Corporation amended
the complaint on February 6, 197914 to seek the nullification of the
foreclosure proceedings and the cancellation of the certificate of sale.
DBP filed its answer on December 17, 1979, 15 and trial followed upon
the termination of the pre-trial without any agreement being reached
by the parties.16
In the meantime, DBP applied for the issuance of a writ of possession
by the RTC. At first, the RTC denied the application but later granted
it upon DBP's motion for reconsideration. Aggrieved, Guariña
Corporation assailed the granting of the application before the CA
on certiorari (C.A.-G.R. No. 12670-SP entitled Guariña Agricultural
and Realty Development Corporation v. Development Bank of the
Philippines). After the CA dismissed the petition for certiorari, DBP
sought the implementation of the order for the issuance of the writ of
possession. Over Guariña Corporation's opposition, the RTC issued
the writ of possession on June 16, 1982.17
Judgment of the RTC
On January 6, 1998, the RTC rendered its judgment in Civil Case No.
12707, disposing as follows:
WHEREFORE, premises considered, the court hereby resolves that
the extra-judicial sales of the mortgaged properties of the plaintiff by
the Office of the Provincial Sheriff of Iloilo on January 15, 1979 are
null and void, so with the consequent issuance of certificates of sale
to the defendant of said properties, the registration thereof with the
Registry of Deeds and the issuance of the transfer certificates of title
involving the real property in its name.
It is also resolved that defendant give back to the plaintiff or its
representative the actual possession and enjoyment of all the
properties foreclosed and possessed by it. To pay the plaintiff the
reasonable rental for the use of its beach resort during the period
starting from the time it (defendant) took over its occupation and use
up to the time possession is actually restored to the plaintiff.
And, on the part of the plaintiff, to pay the defendant the loan it
obtained as soon as it takes possession and management of the beach
resort and resume its business operation.
Furthermore, defendant is ordered to pay plaintiff's attorney's fee of
₱50,000.00.
So ORDERED.18
Decision of the CA
On appeal (C.A.-G.R. CV No. 59491), DBP challenged the judgment
of the RTC, and insisted that:
I
THE TRIAL COURT ERRED AND COMMITTED REVERSIBLE
ERROR IN DECLARING DBP'S FORECLOSURE OF THE
MORTGAGED PROPERTIES AS INVALID AND UNCALLED FOR.
II
THE TRIAL COURT GRIEVOUSLY ERRED IN HOLDING THE
GROUNDS INVOKED BY DBP TO JUSTIFY FORECLOSURE AS
"NOT SUFFICIENT." ON THE CONTRARY, THE MORTGAGE
WAS FORECLOSED BY EXPRESS AUTHORITY OF PARAGRAPH
NO. 4 OF THE MORTGAGE CONTRACT AND SECTION 2 OF P.D.
385 IN ADDITION TO THE QUESTIONED PAR. NO. 26 PRINTED
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Loans in General – Articles 1933-1934, Art 1305; 1318

AT THE BACK OF THE FIRST PAGE OF THE MORTGAGE DBP timely filed a motion for reconsideration, but the CA denied its
CONRACT. motion on October 9, 2003.

III Hence, this appeal by DBP.

THE TRIAL COURT ERRED IN HOLDING THE SALES OF THE Issues

MORTGAGED PROPERTIES TO DBP AS INVALID UNDER
ARTICLES 2113 AND 2141 OF THE CIVIL CODE. DBP submits the following issues for consideration, namely:

IV WHETHER OR NOT THE DECISION OF THE COURT OF

THE TRIAL COURT GRAVELY ERRED AND COMMITTED
[REVERSIBLE] ERROR IN ORDERING DBP TO RETURN TO
PLAINTIFF THE ACTUAL POSSESSION AND ENJOYMENT OF
ALL THE FORECLOSED PROPERTIES AND TO PAY PLAINTIFF
REASONABLE RENTAL FOR THE USE OF THE FORECLOSED
BEACH RESORT.
V PROCEEDINGS IN DECIDING C.A.-G.R. CV NO. 59491 AND
THE TRIAL COURT ERRED IN AWARDING ATTORNEY'S FEES
AGAINST DBP WHICH MERELY EXERCISED ITS RIGHTS UNDER
THE MORTGAGE CONTRACT.19
APPEALS DATED MARCH 26, 2003 AND ITS RESOLUTION
DATED OCTOBER 9, DENYING PETITIONER'S MOTION FOR
RECONSIDERATION WERE ISSUED IN ACCORDANCE WITH
LAW, PREVAILING JURISPRUDENTIAL DECISION AND
SUPPORTED BY EVIDENCE;
WHETHER OR NOT THE HONORABLE COURT OF APPEALS
ADHERED TO THE USUAL COURSE OF JUDICIAL
THEREFORE IN ACCORDANCE WITH THE "LAW OF THE CASE
DOCTRINE."22
Ruling

In its decision promulgated on March 26, 2003, 20 however, the CA The appeal lacks merit.
sustained the RTC's judgment but deleted the award of attorney's
fees, decreeing: 1.
Findings of the CA were supported by the
WHEREFORE, in view of the foregoing, the Decision dated January evidence as well as by law and jurisprudence
6, 1998, rendered by the Regional Trial Court of Iloilo City, Branch 25
in Civil Case No. 12707 for Specific Performance with Preliminary DBP submits that the loan had been granted under its supervised
Injunction is hereby AFFIRMED with MODIFICATION, in that the credit financing scheme for the development of a beach resort, and
award for attorney's fees is deleted. the releases of the proceeds would be subject to conditions that
included the verification of the progress of works in the project to
SO ORDERED.21 forestall diversion of the loan proceeds; and that under Stipulation
No. 26 of the mortgage contract, further loan releases would be

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Loans in General – Articles 1933-1934, Art 1305; 1318
terminated and the account would be considered due and
demandable in the event of a deviation from the purpose of the
loan,23 including the failure to put up the required equity and the
diversion of the loan proceeds to other purposes.24 It assails the
declaration by the CA that Guariña Corporation had not yet been in
default in its obligations despite violations of the terms of the
mortgage contract securing the promissory note.
Guariña Corporation counters that it did not violate the terms of the
promissory note and the mortgage contracts because DBP had fully
collected the interest notwithstanding that the principal obligation
did not yet fall due and become demandable. 25
The submissions of DBP lack merit and substance.
The agreement between DBP and Guariña Corporation was a loan.
Under the law, a loan requires the delivery of money or any other
consumable object by one party to another who acquires ownership
thereof, on the condition that the same amount or quality shall be
paid.26 Loan is a reciprocal obligation, as it arises from the same
cause where one party is the creditor, and the other the debtor. 27 The
obligation of one party in a reciprocal obligation is dependent upon
the obligation of the other, and the performance should ideally be
simultaneous. This means that in a loan, the creditor should release
the full loan amount and the debtor repays it when it becomes due
and demandable.28
In its assailed decision, the CA found and held thusly:
xxxx
x x x It is undisputed that appellee obtained a loan from appellant,
and as security, executed real estate and chattel mortgages.
However, it was never established that appellee was already in
default. Appellant, in a telegram to the appellee reminded the latter
to make good on its construction works, otherwise, it would
foreclose the mortgage it executed. It did not mention that appellee
was already in default. The records show that appellant did not
make any demand for payment of the promissory note. It appears
that the basis of the foreclosure was not a default on the loan but
appellee's failure to complete the project in accordance with
appellant's standards. In fact, appellant refused to release the
remaining balance of the approved loan after it found that the
improvements introduced by appellee were below appellant's
expectations.
The loan agreement between the parties is a reciprocal obligation.
Appellant in the instant case bound itself to grant appellee the loan
amount of ₱3,387,000.00 condition on appellee's payment of the
amount when it falls due. Furthermore, the loan was evidenced by
the promissory note which was secured by real estate mortgage over
several properties and additional chattel mortgage. Reciprocal
obligations are those which arise from the same cause, and in which
each party is a debtor and a creditor of the other, such that the
obligation of one is dependent upon the obligation of the other
(Areola vs. Court of Appeals, 236 SCRA 643). They are to be
performed simultaneously such that the performance of one is
conditioned upon the simultaneous fulfilment of the other (Jaime
Ong vs. Court of Appeals, 310 SCRA 1). The promise of appellee to
pay the loan upon due date as well as to execute sufficient security
for said loan by way of mortgage gave rise to a reciprocal obligation
on the part of appellant to release the entire approved loan amount.
Thus, appellees are entitled to receive the total loan amount as
agreed upon and not an incomplete amount.
The appellant did not release the total amount of the approved loan.
Appellant therefore could not have made a demand for payment of
the loan since it had yet to fulfil its own obligation. Moreover, the
fact that appellee was not yet in default rendered the foreclosure
proceedings premature and improper.
The properties which stood as security for the loan were foreclosed
without any demand having been made on the principal obligation.
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Loans in General – Articles 1933-1934, Art 1305; 1318
For an obligation to become due, there must generally be a demand.
Default generally begins from the moment the creditor demands the
performance of the obligation. Without such demand, judicial or
extrajudicial, the effects of default will not arise (Namarco vs.
Federation of United Namarco Distributors, Inc., 49 SCRA 238; Borje
vs. CFI of Misamis Occidental, 88 SCRA 576).
xxxx
Appellant also admitted in its brief that it indeed failed to release the
full amount of the approved loan. As a consequence, the real estate
mortgage of appellee becomes unenforceable, as it cannot be entirely
foreclosed to satisfy appellee's total debt to appellant (Central Bank
of the Philippines vs. Court of Appeals, 139 SCRA 46).
Since the foreclosure proceedings were premature and
unenforceable, it only follows that appellee is still entitled to
possession of the foreclosed properties. However, appellant took
possession of the same by virtue of a writ of possession issued in its
favor during the pendency of the case. Thus, the trial court correctly
ruled when it ordered appellant to return actual possession of the
subject properties to appellee or its representative and to pay
appellee reasonable rents.
However, the award for attorney's fees is deleted. As a rule, the
award of attorney's fees is the exception rather than the rule and
counsel's fees are not to be awarded every time a party wins a suit.
Attorney's fees cannot be recovered as part of damages because of
the policy that no premium should be placed on the right to litigate
(Pimentel vs. Court of Appeals, et al., 307 SCRA 38). 29
xxxx
We uphold the CA.
To start with, considering that the CA thereby affirmed the factual
findings of the RTC, the Court is bound to uphold such findings, for
it is axiomatic that the trial court's factual findings as affirmed by the
CA are binding on appeal due to the Court not being a trier of facts.
Secondly, by its failure to release the proceeds of the loan in their
entirety, DBP had no right yet to exact on Guariña Corporation the
latter's compliance with its own obligation under the loan. Indeed, if
a party in a reciprocal contract like a loan does not perform its
obligation, the other party cannot be obliged to perform what is
expected of it while the other's obligation remains unfulfilled. 30 In
other words, the latter party does not incur delay.31
Still, DBP called upon Guariña Corporation to make good on the
construction works pursuant to the acceleration clause written in the
mortgage contract (i.e., Stipulation No. 26),32 or else it would
foreclose the mortgages.
DBP's actuations were legally unfounded. It is true that loans are
often secured by a mortgage constituted on real or personal property
to protect the creditor's interest in case of the default of the debtor.
By its nature, however, a mortgage remains an accessory contract
dependent on the principal obligation,33 such that enforcement of the
mortgage contract will depend on whether or not there has been a
violation of the principal obligation. While a creditor and a debtor
could regulate the order in which they should comply with their
reciprocal obligations, it is presupposed that in a loan the lender
should perform its obligation - the release of the full loan amount -
before it could demand that the borrower repay the loaned amount.
In other words, Guariña Corporation would not incur in delay
before DBP fully performed its reciprocal obligation.34
Considering that it had yet to release the entire proceeds of the loan,
DBP could not yet make an effective demand for payment upon
Guariña Corporation to perform its obligation under the loan.
According to Development Bank of the Philippines v. Licuanan, 35 it
would only be when a demand to pay had been made and was
9
Loans in General – Articles 1933-1934, Art 1305; 1318
subsequently refused that a borrower could be considered in default,
and the lender could obtain the right to collect the debt or to
foreclose the mortgage.1âwphi1 Hence, Guariña Corporation would
not be in default without the demand.
Assuming that DBP could already exact from the latter its
compliance with the loan agreement, the letter dated February 27,
1978 that DBP sent would still not be regarded as a demand to
render Guariña Corporation in default under the principal contract
because DBP was only thereby requesting the latter "to put up the
deficiency in the value of improvements."36
Under the circumstances, DBP's foreclosure of the mortgage and the
sale of the mortgaged properties at its instance were premature, and,
therefore, void and ineffectual.37
Being a banking institution, DBP owed it to Guariña Corporation to
exercise the highest degree of diligence, as well as to observe the
high standards of integrity and performance in all its transactions
because its business was imbued with public interest.38 The high
standards were also necessary to ensure public confidence in the
banking system, for, according to Philippine National Bank v.
Pike:39 "The stability of banks largely depends on the confidence of
the people in the honesty and efficiency of banks." Thus, DBP had to
act with great care in applying the stipulations of its agreement with
Guariña Corporation, lest it erodes such public confidence. Yet, DBP
failed in its duty to exercise the highest degree of diligence by
prematurely foreclosing the mortgages and unwarrantedly causing
the foreclosure sale of the mortgaged properties despite Guariña
Corporation not being yet in default. DBP wrongly relied on
Stipulation No. 26 as its basis to accelerate the obligation of Guariña
Corporation, for the stipulation was relevant to an Omnibus
Agricultural Loan, to Guariña Corporation's loan which was
intended for a project other than agricultural in nature.
Even so, Guariña Corporation did not elevate the actionability of
DBP's negligence to the CA, and did not also appeal the CA's
deletion of the award of attorney's fees allowed by the
RTC.1âwphi1 With the decision of the CA consequently becoming
final and immutable as to Guariña Corporation, we will not delve
any further on DBP's actionable actuations.
2.
The doctrine of law of the case
did not apply herein
DBP insists that the decision of the CA in C.A.-G.R. No. 12670-SP
already constituted the law of the case. Hence, the CA could not
decide the appeal in C.A.-G.R. CV No. 59491 differently.
Guariña Corporation counters that the ruling in C.A.-G.R. No. 12670-
SP did not constitute the law of the case because C.A.-G.R. No.
12670-SP concerned the issue of possession by DBP as the winning
bidder in the foreclosure sale, and had no bearing whatsoever to the
legal issues presented in C.A.-G.R. CV No. 59491.
Law of the case has been defined as the opinion delivered on a
former appeal, and means, more specifically, that whatever is once
irrevocably established as the controlling legal rule of decision
between the same parties in the same case continues to be the law of
the case, whether correct on general principles or not, so long as the
facts on which such decision was predicated continue to be the facts
of the case before the court.40
The concept of law of the case is well explained in Mangold v.
Bacon,41 an American case, thusly:
The general rule, nakedly and boldly put, is that legal conclusions
announced on a first appeal, whether on the general law or the law
as applied to the concrete facts, not only prescribe the duty and limit
the power of the trial court to strict obedience and conformity
thereto, but they become and remain the law of the case in all other
steps below or above on subsequent appeal. The rule is grounded on
10
Loans in General – Articles 1933-1934, Art 1305; 1318
convenience, experience, and reason. Without the rule there would
be no end to criticism, reagitation, reexamination, and reformulation.
In short, there would be endless litigation. It would be intolerable if
parties litigants were allowed to speculate on changes in the
personnel of a court, or on the chance of our rewriting propositions
once gravely ruled on solemn argument and handed down as the
law of a given case. An itch to reopen questions foreclosed on a first
appeal would result in the foolishness of the inquisitive youth who
pulled up his corn to see how it grew. Courts are allowed, if they so
choose, to act like ordinary sensible persons. The administration of
justice is a practical affair. The rule is a practical and a good one of
frequent and beneficial use.
The doctrine of law of the case simply means, therefore, that when
an appellate court has once declared the law in a case, its declaration
continues to be the law of that case even on a subsequent appeal,
notwithstanding that the rule thus laid down may have been
reversed in other cases.42 For practical considerations, indeed, once
the appellate court has issued a pronouncement on a point that was
presented to it with full opportunity to be heard having been
accorded to the parties, the pronouncement should be regarded as
the law of the case and should not be reopened on remand of the
case to determine other issues of the case, like damages. 43 But the
law of the case, as the name implies, concerns only legal questions or
issues thereby adjudicated in the former appeal.
The foregoing understanding of the concept of the law of the case
exposes DBP's insistence to be unwarranted.
To start with, the ex parte proceeding on DBP's application for the
issuance of the writ of possession was entirely independent from the
judicial demand for specific performance herein. In fact, C.A.-G.R.
No. 12670-SP, being the interlocutory appeal concerning the issuance
of the writ of possession while the main case was pending, was not
at all intertwined with any legal issue properly raised and litigated
in C.A.-G.R. CV No. 59491, which was the appeal to determine
whether or not DBP's foreclosure was valid and effectual. And,
secondly, the ruling in C.A.-G.R. No. 12670-SP did not settle any
question of law involved herein because this case for specific
performance was not a continuation of C.A.-G.R. No. 12670-SP
(which was limited to the propriety of the issuance of the writ of
possession in favor of DBP), and vice versa.
3.
Guarifia Corporation is legally entitled to the
restoration of the possession of the resort complex
and payment of reasonable rentals by DBP
Having found and pronounced that the extrajudicial foreclosure by
DBP was premature, and that the ensuing foreclosure sale was void
and ineffectual, the Court affirms the order for the restoration of
possession to Guarifia Corporation and the payment of reasonable
rentals for the use of the resort. The CA properly held that the
premature and invalid foreclosure had unjustly dispossessed
Guarifia Corporation of its properties. Consequently, the restoration
of possession and the payment of reasonable rentals were in
accordance with Article 561 of the Civil Code, which expressly states
that one who recovers, according to law, possession unjustly lost
shall be deemed for all purposes which may redound to his benefit
to have enjoyed it without interruption.
WHEREFORE, the Court AFFIRMS the decision promulgated on
March 26, 2003; and ORDERS the petitioner to pay the costs of suit.
SO ORDERED.
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Loans in General – Articles 1933-1934, Art 1305; 1318
DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner,
vs.
GUARIÑA AGRICULTURAL AND REALTY DEVELOPMENT
CORPORATION, Respondent.
G.R. No. 160758 January 15, 2014
TOPIC: Contracts, Delay
FACTS:
In July 1976, Guariña Corporation applied for a loan from
DBP to finance the development of its resort complex. The loan, in
the amount of P3,387,000.00, was approved on August 5, 1976.
Guariña Corporation executed a promissory note that would be due
on November 3, 1988. On October 5, 1976, Guariña Corporation
executed a real estate mortgage over several real properties in favor
of DBP as security for the repayment of the loan. On May 17, 1977,
Guariña Corporation executed a chattelmortgage over the personal
properties existing at the resort complex and those yet to
be acquired out of the proceeds of the loan, also to secure the
performance of the obligation. Prior to the release of the loan, DBP
required Guariña Corporation to put up a cash equity of
P1,470,951.00 for the construction of the buildings and other
improvements on the resort complex.
The loan was released in several installments, and Guariña
Corporation used the proceeds to defray the cost of additional
improvements in the resort complex. In all, the amount released
totaled P3,003,617.49, from which DBP withheld P148,102.98 as
interest.
Guariña Corporation demanded the release of the balance
of the loan, but DBP refused. Instead, DBP directly paid some
suppliers of Guariña Corporation over the latter’s objection. DBP
found upon inspection of the resort project, its developments and
improvements that Guariña Corporation had not completed
the construction works. In a letter dated February 27, 1978, and a
telegram dated June 9, 1978, DBP thus demanded that Guariña
Corporation expedite the completion of the project, and warned that
it would initiate foreclosure proceedings should Guariña
Corporation not do so.10
Unsatisfied with the non-action and objection of Guariña
Corporation, DBP initiated extrajudicial foreclosure proceedings
ISSUE:
Whether or not Guarina was in delay in performing its
obligation making DBP’s action to foreclose the mortgage proper.
HELD:
NO. The Court held that the foreclosure of a mortgage prior
to the mortgagor’s default on the principal obligation is premature,
and should be undone for being void and ineffectual. The mortgagee
who has been meanwhile given possession of the mortgaged
property by virtue of a writ of possession issued to it as the
purchaser at the foreclosure sale may be required to restore the
possession of the property to the mortgagor and to pay reasonable
rent for the use of the property during the intervening period.
The agreement between DBP and Guariña Corporation was
a loan. Under the law, a loan requires the delivery of money or any
other consumable object by one party to another
who acquires ownership thereof, on the condition that the same
amount or quality shall be paid. Loan is a reciprocal obligation, as it
arises from the same cause where one party is the creditor, and the
other the debtor. The obligation of one party in a reciprocal
obligation is dependent upon the obligation of the other, and the
performance should ideally be simultaneous. This means that in a
loan, the creditor should release the full loan amount and
the debtor repays it when it becomes due and demandable.
12
Loans in General – Articles 1933-1934, Art 1305; 1318

The loan agreement between the parties is a reciprocal

obligation. Appellant in the instant case bound itself to grant
appellee the loan amount of P3,387,000.00 condition on appellee’s
payment of the amount when it falls due. The appellant did not
release the total amount of the approved loan. Appellant therefore
could not have made a demand for payment of the loan since it had
yet to fulfil its own obligation. Moreover, the fact that appellee was
not yet in default rendered the foreclosure proceedings premature
and improper.

By its failure to release the proceeds of the loan in their

entirety, DBP had no right yet to exact on Guariña Corporation the
latter’s compliance with its own obligation under the loan. Indeed, if
a party in a reciprocal contract like a loan does not perform its
obligation, the other party cannot be obliged to perform what is
expected of it while the other’s obligation remains unfulfilled. In
other words, the latter party does not incur delay.

13
Loans in General – Articles 1933-1934, Art 1305; 1318
G.R. No. L-4150 February 10, 1910
FELIX DE LOS SANTOS, plaintiff-appelle,
vs.
AGUSTINA JARRA, administratrix of the estate of Magdaleno
Jimenea, deceased, defendant-appellant.
TORRES, J.:
On the 1st of September, 1906, Felix de los Santos brought suit
against Agustina Jarra, the administratrix of the estate of Magdaleno
Jimenea, alleging that in the latter part of 1901 Jimenea borrowed
and obtained from the plaintiff ten first-class carabaos, to be used at
the animal-power mill of his hacienda during the season of 1901-2,
without recompense or remuneration whatever for the use thereof,
under the sole condition that they should be returned to the owner
as soon as the work at the mill was terminated; that Magdaleno
Jimenea, however, did not return the carabaos, notwithstanding the
fact that the plaintiff claimed their return after the work at the mill
was finished; that Magdaleno Jimenea died on the 28th of October,
1904, and the defendant herein was appointed by the Court of First
Instance of Occidental Negros administratrix of his estate and she
took over the administration of the same and is still performing her
duties as such administratrix; that the plaintiff presented his claim to
the commissioners of the estate of Jimenea, within the legal term, for
the return of the said ten carabaos, but the said commissioners
rejected his claim as appears in their report; therefore, the plaintiff
prayed that judgment be entered against the defendant as
administratrix of the estate of the deceased, ordering her to return
the ten first-class carabaos loaned to the late Jimenea, or their present
value, and to pay the costs.
The defendant was duly summoned, and on the 25th of September,
1906, she demurred in writing to the complaint on the ground that it
was vague; but on the 2d of October of the same year, in answer to
the complaint, she said that it was true that the late Magdaleno
Jimenea asked the plaintiff to loan him ten carabaos, but that he only
obtained three second-class animals, which were afterwards
transferred by sale by the plaintiff to the said Jimenea; that she
denied the allegations contained in paragraph 3 of the complaint; for
all of which she asked the court to absolve her of the complaint with
the cost against the plaintiff.
By a writing dated the 11th of December, 1906, Attorney Jose Felix
Martinez notified the defendant and her counsel, Matias Hilado, that
he had made an agreement with the plaintiff to the effect that the
latter would not compromise the controversy without his consent,
and that as fees for his professional services he was to receive one
half of the amount allowed in the judgment if the same were entered
in favor of the plaintiff.
The case came up for trial, evidence was adduced by both parties,
and either exhibits were made of record. On the 10th of January,
1907, the court below entered judgment sentencing Agustina Jarra,
as administratrix of the estate of Magdaleno Jimenea, to return to the
plaintiff, Felix de los Santos, the remaining six second and third class
carabaos, or the value thereof at the rate of P120 each, or a total of
P720 with the costs.
Counsel for the defendant excepted to the foregoing judgment, and,
by a writing dated January 19, moved for anew trial on the ground
that the findings of fact were openly and manifestly contrary to the
weight of the evidence. The motion was overruled, the defendant
duly excepted, and in due course submitted the corresponding bill of
exceptions, which was approved and submitted to this court.
The defendant has admitted that Magdaleno Jimenea asked the
plaintiff for the loan of ten carabaos which are now claimed by the
latter, as shown by two letters addressed by the said Jimenea to Felix
de los Santos; but in her answer the said defendant alleged that the
late Jimenea only obtained three second-class carabaos, which were
subsequently sold to him by the owner, Santos; therefore, in order to
decide this litigation it is indispensable that proof be forthcoming
14
Loans in General – Articles 1933-1934, Art 1305; 1318
that Jimenea only received three carabaos from his son-in-law
Santos, and that they were sold by the latter to him.
The record discloses that it has been fully proven from the testimony
of a sufficient number of witnesses that the plaintiff, Santos, sent in
charge of various persons the ten carabaos requested by his father-
in-law, Magdaleno Jimenea, in the two letters produced at the trial
by the plaintiff, and that Jimenea received them in the presence of
some of said persons, one being a brother of said Jimenea, who saw
the animals arrive at the hacienda where it was proposed to employ
them. Four died of rinderpest, and it is for this reason that the
judgment appealed from only deals with six surviving carabaos.
The alleged purchase of three carabaos by Jimenea from his son-in-
law Santos is not evidenced by any trustworthy documents such as
those of transfer, nor were the declarations of the witnesses
presented by the defendant affirming it satisfactory; for said reason
it can not be considered that Jimenea only received three carabaos on
loan from his son-in-law, and that he afterwards kept them definitely
by virtue of the purchase.
By the laws in force the transfer of large cattle was and is still made
by means of official documents issued by the local authorities; these
documents constitute the title of ownership of the carabao or horse
so acquired. Furthermore, not only should the purchaser be
provided with a new certificate or credential, a document which has
not been produced in evidence by the defendant, nor has the loss of
the same been shown in the case, but the old documents ought to be
on file in the municipality, or they should have been delivered to the
new purchaser, and in the case at bar neither did the defendant
present the old credential on which should be stated the name of the
previous owner of each of the three carabaos said to have been sold
by the plaintiff.
From the foregoing it may be logically inferred that the carabaos
loaned or given on commodatum to the now deceased Magdaleno
Jimenea were ten in number; that they, or at any rate the six
surviving ones, have not been returned to the owner thereof, Felix de
los Santos, and that it is not true that the latter sold to the former
three carabaos that the purchaser was already using; therefore, as the
said six carabaos were not the property of the deceased nor of any of
his descendants, it is the duty of the administratrix of the estate to
return them or indemnify the owner for their value.
The Civil Code, in dealing with loans in general, from which generic
denomination the specific one of commodatum is derived,
establishes prescriptions in relation to the last-mentioned contract by
the following articles:
ART. 1740. By the contract of loan, one of the parties delivers
to the other, either anything not perishable, in order that the
latter may use it during a certain period and return it to the
former, in which case it is called commodatum, or money or
any other perishable thing, under the condition to return an
equal amount of the same kind and quality, in which case it
is merely called a loan.
Commodatum is essentially gratuitous.
A simple loan may be gratuitous, or made under a
stipulation to pay interest.
ART. 1741. The bailee acquires retains the ownership of the
thing loaned. The bailee acquires the use thereof, but not its
fruits; if any compensation is involved, to be paid by the
person requiring the use, the agreement ceases to be a
commodatum.
ART. 1742. The obligations and rights which arise from the
commodatum pass to the heirs of both contracting parties,
unless the loan has been in consideration for the person of
the bailee, in which case his heirs shall not have the right to
continue using the thing loaned.
15
Loans in General – Articles 1933-1934, Art 1305; 1318
The carabaos delivered to be used not being returned by the
defendant upon demand, there is no doubt that she is under
obligation to indemnify the owner thereof by paying him their value.
Article 1101 of said code reads:
Those who in fulfilling their obligations are guilty of fraud,
negligence, or delay, and those who in any manner
whatsoever act in contravention of the stipulations of the
same, shall be subjected to indemnify for the losses and
damages caused thereby.
The obligation of the bailee or of his successors to return either the
thing loaned or its value, is sustained by the supreme tribunal of
Sapin. In its decision of March 21, 1895, it sets out with precision the
legal doctrine touching commodatum as follows:
Although it is true that in a contract of commodatum the
bailor retains the ownership of the thing loaned, and at the
expiration of the period, or after the use for which it was
loaned has been accomplished, it is the imperative duty of
the bailee to return the thing itself to its owner, or to pay him
damages if through the fault of the bailee the thing should
have been lost or injured, it is clear that where public
securities are involved, the trial court, in deferring to the
claim of the bailor that the amount loaned be returned him
by the bailee in bonds of the same class as those which
constituted the contract, thereby properly applies law 9 of
title 11 of partida 5.
With regard to the third assignment of error, based on the fact that
the plaintiff Santos had not appealed from the decision of the
commissioners rejecting his claim for the recovery of his carabaos, it
is sufficient to estate that we are not dealing with a claim for the
payment of a certain sum, the collection of a debt from the estate, or
payment for losses and damages (sec. 119, Code of Civil Procedure),
but with the exclusion from the inventory of the property of the late
Jimenea, or from his capital, of six carabaos which did not belong to
him, and which formed no part of the inheritance.
The demand for the exclusion of the said carabaos belonging to a
third party and which did not form part of the property of the
deceased, must be the subject of a direct decision of the court in an
ordinary action, wherein the right of the third party to the property
which he seeks to have excluded from the inheritance and the right
of the deceased has been discussed, and rendered in view of the
result of the evidence adduced by the administrator of the estate and
of the claimant, since it is so provided by the second part of section
699 and by section 703 of the Code of Civil Procedure; the refusal of
the commissioners before whom the plaintiff unnecessarily appeared
can not affect nor reduce the unquestionable right of ownership of
the latter, inasmuch as there is no law nor principle of justice
authorizing the successors of the late Jimenea to enrich themselves at
the cost and to the prejudice of Felix de los Santos.
For the reasons above set forth, by which the errors assigned to the
judgment appealed from have been refuted, and considering that the
same is in accordance with the law and the merits of the case, it is
our opinion that it should be affirmed and we do hereby affirm it
with the costs against the appellant. So ordered.
Facts:
The Plaintiff Felix delos Santos filed this suit against Agustina Jarra.
Jarra was the administratix of the estate of Jimenea. Plaintiff alleged
that he owned 10 1st class carabaos which he lent to his father-in-law
Jimenea to be used in the animal-power mill without compensation.
This was done on the condition of their return after the work at the
latter’s mill is terminated. When delos Santos demanded the return
of the animals Jimenea refused, hence this suit.
Issue:
W/N the contracts is one of a commodatum
16
Loans in General – Articles 1933-1934, Art 1305; 1318

Ruling:
YES. The carabaos were given on commodatum as these were
delivered to be used by defendant. Upon failure of defendant to
return the cattle upon demand, he is under the obligation to
indemnify the plaintiff by paying him their value. Since the 6
carabaos were not the property of the deceased or of any of his
descendants, it is the duty of the administratrix of the estate to either
return them or indemnify the owner thereof of their value.

17
Loans in General – Articles 1933-1934, Art 1305; 1318

G.R. No. L-24968 April 27, 1972 1. That the proceeds of the loan shall be utilized
exclusively for the following purposes:
SAURA IMPORT and EXPORT CO., INC., plaintiff-appellee,
vs. For construction of factory building P250,000.00
DEVELOPMENT BANK OF THE PHILIPPINES, defendant-
appellant. For payment of the balance of purchase

MAKALINTAL, J.:p price of machinery and equipment 240,900.00

In Civil Case No. 55908 of the Court of First Instance of Manila, For working capital 9,100.00
judgment was rendered on June 28, 1965 sentencing defendant
Development Bank of the Philippines (DBP) to pay actual and
T O T A L P500,000.00
consequential damages to plaintiff Saura Import and Export Co., Inc.
in the amount of P383,343.68, plus interest at the legal rate from the
4. That Mr. & Mrs. Ramon E. Saura, Inocencia Arellano, Aniceto
date the complaint was filed and attorney's fees in the amount of
Caolboy and Gregoria Estabillo and China Engineers, Ltd. shall sign
P5,000.00. The present appeal is from that judgment.
the promissory notes jointly with the borrower-corporation;
In July 1953 the plaintiff (hereinafter referred to as Saura, Inc.)
5. That release shall be made at the discretion of the Rehabilitation
applied to the Rehabilitation Finance Corporation (RFC), before its
Finance Corporation, subject to availability of funds, and as the
conversion into DBP, for an industrial loan of P500,000.00, to be used
construction of the factory buildings progresses, to be certified to by
as follows: P250,000.00 for the construction of a factory building (for
an appraiser of this Corporation;"
the manufacture of jute sacks); P240,900.00 to pay the balance of the
purchase price of the jute mill machinery and equipment; and
P9,100.00 as additional working capital. Saura, Inc. was officially notified of the resolution on January 9, 1954.
The day before, however, evidently having otherwise been informed
of its approval, Saura, Inc. wrote a letter to RFC, requesting a
Parenthetically, it may be mentioned that the jute mill machinery
modification of the terms laid down by it, namely: that in lieu of
had already been purchased by Saura on the strength of a letter of
having China Engineers, Ltd. (which was willing to assume liability
credit extended by the Prudential Bank and Trust Co., and arrived in
only to the extent of its stock subscription with Saura, Inc.) sign as
Davao City in July 1953; and that to secure its release without first
co-maker on the corresponding promissory notes, Saura, Inc. would
paying the draft, Saura, Inc. executed a trust receipt in favor of the
put up a bond for P123,500.00, an amount equivalent to such
said bank.
subscription; and that Maria S. Roca would be substituted for
Inocencia Arellano as one of the other co-makers, having acquired
On January 7, 1954 RFC passed Resolution No. 145 approving the
the latter's shares in Saura, Inc.
loan application for P500,000.00, to be secured by a first mortgage on
the factory building to be constructed, the land site thereof, and the
In view of such request RFC approved Resolution No. 736 on
machinery and equipment to be installed. Among the other terms
February 4, 1954, designating of the members of its Board of
spelled out in the resolution were the following:

18
Loans in General – Articles 1933-1934, Art 1305; 1318
Governors, for certain reasons stated in the resolution, "to reexamine
all the aspects of this approved loan ... with special reference as to
the advisability of financing this particular project based on present
conditions obtaining in the operations of jute mills, and to submit his
findings thereon at the next meeting of the Board."
On March 24, 1954 Saura, Inc. wrote RFC that China Engineers, Ltd.
had again agreed to act as co-signer for the loan, and asked that the
necessary documents be prepared in accordance with the terms and
conditions specified in Resolution No. 145. In connection with the
reexamination of the project to be financed with the loan applied for,
as stated in Resolution No. 736, the parties named their respective
committees of engineers and technical men to meet with each other
and undertake the necessary studies, although in appointing its own
committee Saura, Inc. made the observation that the same "should
not be taken as an acquiescence on (its) part to novate, or accept new
conditions to, the agreement already) entered into," referring to its
acceptance of the terms and conditions mentioned in Resolution No.
145.
On April 13, 1954 the loan documents were executed: the promissory
note, with F.R. Halling, representing China Engineers, Ltd., as one of
the co-signers; and the corresponding deed of mortgage, which was
duly registered on the following April 17.
It appears, however, that despite the formal execution of the loan
agreement the reexamination contemplated in Resolution No. 736
proceeded. In a meeting of the RFC Board of Governors on June 10,
1954, at which Ramon Saura, President of Saura, Inc., was present, it
was decided to reduce the loan from P500,000.00 to P300,000.00.
Resolution No. 3989 was approved as follows:
RESOLUTION No. 3989. Reducing the Loan Granted Saura Import &
Export Co., Inc. under Resolution No. 145, C.S., from P500,000.00 to
P300,000.00. Pursuant to Bd. Res. No. 736, c.s., authorizing the re-
examination of all the various aspects of the loan granted the Saura
Import & Export Co. under Resolution No. 145, c.s., for the purpose
of financing the manufacture of jute sacks in Davao, with special
reference as to the advisability of financing this particular project
based on present conditions obtaining in the operation of jute mills,
and after having heard Ramon E. Saura and after extensive
discussion on the subject the Board, upon recommendation of the
Chairman, RESOLVED that the loan granted the Saura Import &
Export Co. be REDUCED from P500,000 to P300,000 and that releases
up to P100,000 may be authorized as may be necessary from time to
time to place the factory in actual operation: PROVIDED that all
terms and conditions of Resolution No. 145, c.s., not inconsistent
herewith, shall remain in full force and effect."
On June 19, 1954 another hitch developed. F.R. Halling, who had
signed the promissory note for China Engineers Ltd. jointly and
severally with the other RFC that his company no longer to of the
loan and therefore considered the same as cancelled as far as it was
concerned. A follow-up letter dated July 2 requested RFC that the
registration of the mortgage be withdrawn.
In the meantime Saura, Inc. had written RFC requesting that the loan
of P500,000.00 be granted. The request was denied by RFC, which
added in its letter-reply that it was "constrained to consider as
cancelled the loan of P300,000.00 ... in view of a notification ... from
the China Engineers Ltd., expressing their desire to consider the loan
insofar as they are concerned."
On July 24, 1954 Saura, Inc. took exception to the cancellation of the
loan and informed RFC that China Engineers, Ltd. "will at any time
reinstate their signature as co-signer of the note if RFC releases to us
the P500,000.00 originally approved by you.".
On December 17, 1954 RFC passed Resolution No. 9083, restoring the
loan to the original amount of P500,000.00, "it appearing that China
Engineers, Ltd. is now willing to sign the promissory notes jointly
with the borrower-corporation," but with the following proviso:
19
Loans in General – Articles 1933-1934, Art 1305; 1318

That in view of observations made of the shortage
and high cost of imported raw materials, the
Department of Agriculture and Natural Resources
shall certify to the following:
1. That the raw materials needed by the borrower-
corporation to carry out its operation are available in
the immediate vicinity; and
2. That there is prospect of increased production
thereof to provide adequately for the requirements
of the factory."
materials to provide adequately for the requirements of the factory.
Saura, Inc. itself confirmed the defendant's stand impliedly in its
letter of January 21, 1955: (1) stating that according to a special study
made by the Bureau of Forestry "kenaf will not be available in
sufficient quantity this year or probably even next year;" (2)
requesting "assurances (from RFC) that my company and associates
will be able to bring in sufficient jute materials as may be necessary
for the full operation of the jute mill;" and (3) asking that releases of
the loan be made as follows:
a) For the payment of the receipt for jute mill
machineries with the Prudential Bank &

The action thus taken was communicated to Saura, Inc. in a letter of Trust Company P250,000.00
RFC dated December 22, 1954, wherein it was explained that the
certification by the Department of Agriculture and Natural (For immediate release)
Resources was required "as the intention of the original approval (of
the loan) is to develop the manufacture of sacks on the basis of b) For the purchase of materials and equip-
locally available raw materials." This point is important, and sheds ment per attached list to enable the jute
light on the subsequent actuations of the parties. Saura, Inc. does not mill to operate 182,413.91
deny that the factory he was building in Davao was for the
manufacture of bags from local raw materials. The cover page of its c) For raw materials and labor 67,586.09
brochure (Exh. M) describes the project as a "Joint venture by and
between the Mindanao Industry Corporation and the Saura Import 1) P25,000.00 to be released on the
and Export Co., Inc. to finance, manage and operate a Kenaf mill open-
plant, to manufacture copra and corn bags, runners, floor mattings, ing of the letter of credit for raw jute
carpets, draperies; out of 100% local raw materials, principal kenaf." for $25,000.00.
The explanatory note on page 1 of the same brochure states that, the
venture "is the first serious attempt in this country to use 100%
2) P25,000.00 to be released upon
locally grown raw materials notably kenaf which is presently grown
arrival
commercially in theIsland of Mindanao where the proposed jutemill
of raw jute.
is located ..."

3) P17,586.09 to be released as soon

This fact, according to defendant DBP, is what moved RFC to
as the
approve the loan application in the first place, and to require, in its
mill is ready to operate.
Resolution No. 9083, a certification from the Department of
Agriculture and Natural Resources as to the availability of local raw

20
Loans in General – Articles 1933-1934, Art 1305; 1318
On January 25, 1955 RFC sent to Saura, Inc. the following reply:
Dear Sirs:
This is with reference to your letter
of January 21, 1955, regarding the
release of your loan under
consideration of P500,000. As stated
in our letter of December 22, 1954,
the releases of the loan, if revived,
are proposed to be made from time
to time, subject to availability of
funds towards the end that the sack
factory shall be placed in actual
operating status. We shall be able to
act on your request for revised
purpose and manner of releases
upon re-appraisal of the securities
offered for the loan.
With respect to our requirement
that the Department of Agriculture
and Natural Resources certify that
the raw materials needed are
available in the immediate vicinity
and that there is prospect of
increased production thereof to
provide adequately the
requirements of the factory, we
wish to reiterate that the basis of the
original approval is to develop the
manufacture of sacks on the basis of
the locally available raw materials.
Your statement that you will have to
rely on the importation of jute and
your request that we give you
assurance that your company will
be able to bring in sufficient jute
materials as may be necessary for
the operation of your factory, would
not be in line with our principle in
approving the loan.
With the foregoing letter the negotiations came to a standstill. Saura,
Inc. did not pursue the matter further. Instead, it requested RFC to
cancel the mortgage, and so, on June 17, 1955 RFC executed the
corresponding deed of cancellation and delivered it to Ramon F.
Saura himself as president of Saura, Inc.
It appears that the cancellation was requested to make way for the
registration of a mortgage contract, executed on August 6, 1954, over
the same property in favor of the Prudential Bank and Trust Co.,
under which contract Saura, Inc. had up to December 31 of the same
year within which to pay its obligation on the trust receipt heretofore
mentioned. It appears further that for failure to pay the said
obligation the Prudential Bank and Trust Co. sued Saura, Inc. on
May 15, 1955.
On January 9, 1964, ahnost 9 years after the mortgage in favor of RFC
was cancelled at the request of Saura, Inc., the latter commenced the
present suit for damages, alleging failure of RFC (as predecessor of
the defendant DBP) to comply with its obligation to release the
proceeds of the loan applied for and approved, thereby preventing
the plaintiff from completing or paying contractual commitments it
had entered into, in connection with its jute mill project.
The trial court rendered judgment for the plaintiff, ruling that there
was a perfected contract between the parties and that the defendant
was guilty of breach thereof. The defendant pleaded below, and
reiterates in this appeal: (1) that the plaintiff's cause of action had
prescribed, or that its claim had been waived or abandoned; (2) that
there was no perfected contract; and (3) that assuming there was, the
plaintiff itself did not comply with the terms thereof.
21
Loans in General – Articles 1933-1934, Art 1305; 1318
We hold that there was indeed a perfected consensual contract, as
recognized in Article 1934 of the Civil Code, which provides:
ART. 1954. An accepted promise to deliver
something, by way of commodatum or simple loan
is binding upon the parties, but the commodatum or
simple loan itself shall not be perferted until the
delivery of the object of the contract.
There was undoubtedly offer and acceptance in this case: the
application of Saura, Inc. for a loan of P500,000.00 was approved by
resolution of the defendant, and the corresponding mortgage was
executed and registered. But this fact alone falls short of resolving
the basic claim that the defendant failed to fulfill its obligation and
the plaintiff is therefore entitled to recover damages.
It should be noted that RFC entertained the loan application of
Saura, Inc. on the assumption that the factory to be constructed
would utilize locally grown raw materials, principally kenaf. There is
no serious dispute about this. It was in line with such assumption
that when RFC, by Resolution No. 9083 approved on December 17,
1954, restored the loan to the original amount of P500,000.00. it
imposed two conditions, to wit: "(1) that the raw materials needed by
the borrower-corporation to carry out its operation are available in
the immediate vicinity; and (2) that there is prospect of increased
production thereof to provide adequately for the requirements of the
factory." The imposition of those conditions was by no means a
deviation from the terms of the agreement, but rather a step in its
implementation. There was nothing in said conditions that
contradicted the terms laid down in RFC Resolution No. 145, passed
on January 7, 1954, namely — "that the proceeds of the loan shall be
utilized exclusively for the following purposes: for construction of
factory building — P250,000.00; for payment of the balance of
purchase price of machinery and equipment — P240,900.00; for
working capital — P9,100.00." Evidently Saura, Inc. realized that it
could not meet the conditions required by RFC, and so wrote its
letter of January 21, 1955, stating that local jute "will not be able in
sufficient quantity this year or probably next year," and asking that
out of the loan agreed upon the sum of P67,586.09 be released "for
raw materials and labor." This was a deviation from the terms laid
down in Resolution No. 145 and embodied in the mortgage contract,
implying as it did a diversion of part of the proceeds of the loan to
purposes other than those agreed upon.
When RFC turned down the request in its letter of January 25, 1955
the negotiations which had been going on for the implementation of
the agreement reached an impasse. Saura, Inc. obviously was in no
position to comply with RFC's conditions. So instead of doing so and
insisting that the loan be released as agreed upon, Saura, Inc. asked
that the mortgage be cancelled, which was done on June 15, 1955.
The action thus taken by both parties was in the nature cf mutual
desistance — what Manresa terms "mutuo disenso"1 — which is a
mode of extinguishing obligations. It is a concept that derives from
the principle that since mutual agreement can create a contract,
mutual disagreement by the parties can cause its extinguishment.2
The subsequent conduct of Saura, Inc. confirms this desistance. It did
not protest against any alleged breach of contract by RFC, or even
point out that the latter's stand was legally unjustified. Its request for
cancellation of the mortgage carried no reservation of whatever
rights it believed it might have against RFC for the latter's non-
compliance. In 1962 it even applied with DBP for another loan to
finance a rice and corn project, which application was disapproved.
It was only in 1964, nine years after the loan agreement had been
cancelled at its own request, that Saura, Inc. brought this action for
damages.All these circumstances demonstrate beyond doubt that the
said agreement had been extinguished by mutual desistance — and
that on the initiative of the plaintiff-appellee itself.
With this view we take of the case, we find it unnecessary to
consider and resolve the other issues raised in the respective briefs of
the parties.
22
Loans in General – Articles 1933-1934, Art 1305; 1318

WHEREFORE, the judgment appealed from is reversed and the loan is binding upon the parties, but the commodatum or simple
complaint dismissed, with costs against the plaintiff-appellee. loan itself shall not be perfected until delivery of the object of the
contract.
FACTS
Saura applied to the Rehabilitation Finance Corporation (RFC), There was undoubtedly offer and acceptance in the case. When an
before its conversion into DBP, for an industrial loan to be used for application for a loan of money was approved by resolution of the
construction of factory building, for payment of the balance of the respondent corporation and the responding mortgage was executed
purchase price of the jute machinery and equipment and as and registered, there arises a perfected consensual contract.
additional working capital. In Resolution No.145, the loan
application was approved to be secured first by mortgage on the
factory buildings, the land site, and machinery and equipment to be
installed.

The mortgage was registered and documents for the promissory

note were executed. The cancellation of the mortgage was requested
to make way for the registration of a mortgage contract over the
same property in favor of Prudential Bank and Trust Co., the latter
having issued Saura letter of credit for the release of the jute
machinery. As security, Saura execute a trust receipt in favor of the
Prudential. For failure of Saura to pay said obligation, Prudential
sued Saura.

After 9 years after the mortgage was cancelled, Saura sued RFc
alleging failure to comply with tits obligations to release the loan
proceeds, thereby prevented it from paying the obligation to
Prudential Bank.

The trial court ruled in favor of Saura, ruling that there was a
perfected contract between the parties ad that the RFC was guilty of
breach thereof.

ISSUE
Whether or not there was a perfected contract between the parties.

HELD
The Court held in the affirmative. Article 1934 provides: An accepted
promise to deliver something by way of commodatum or simple

23
Loans in General – Articles 1933-1934, Art 1305; 1318
G.R. No. 118375 October 3, 2003
CELESTINA T. NAGUIAT, petitioner,
vs.
COURT OF APPEALS and AURORA QUEAÑO, respondents.
DECISION
TINGA, J.:
Before us is a Petition for Review on Certiorari under Rule 45,
assailing the decision of the Sixteenth Division of the respondent
Court of Appeals promulgated on 21 December 1994 1 , which
affirmed in toto the decision handed down by the Regional Trial
Court (RTC) of Pasay City.2
The case arose when on 11 August 1981, private respondent Aurora
Queaño (Queaño) filed a complaint before the Pasay City RTC for
cancellation of a Real Estate Mortgage she had entered into with
petitioner Celestina Naguiat (Naguiat). The RTC rendered a
decision, declaring the questioned Real Estate Mortgage void, which
Naguiat appealed to the Court of Appeals. After the Court of
Appeals upheld the RTC decision, Naguiat instituted the present
petition.1ªvvphi1.nét
The operative facts follow:
Queaño applied with Naguiat for a loan in the amount of Two
Hundred Thousand Pesos (₱200,000.00), which Naguiat granted. On
11 August 1980, Naguiat indorsed to Queaño Associated Bank Check
No. 090990 (dated 11 August 1980) for the amount of Ninety Five
Thousand Pesos (₱95,000.00), which was earlier issued to Naguiat by
the Corporate Resources Financing Corporation. She also issued her
own Filmanbank Check No. 065314, to the order of Queaño, also
dated 11 August 1980 and for the amount of Ninety Five Thousand
Pesos (₱95,000.00). The proceeds of these checks were to constitute
the loan granted by Naguiat to Queaño.3
To secure the loan, Queaño executed a Deed of Real Estate Mortgage
dated 11 August 1980 in favor of Naguiat, and surrendered to the
latter the owner’s duplicates of the titles covering the mortgaged
properties.4 On the same day, the mortgage deed was notarized, and
Queaño issued to Naguiat a promissory note for the amount of TWO
HUNDRED THOUSAND PESOS (₱200,000.00), with interest at 12%
per annum, payable on 11 September 1980. 5Queaño also issued a
Security Bank and Trust Company check, postdated 11 September
1980, for the amount of TWO HUNDRED THOUSAND PESOS
(₱200,000.00) and payable to the order of Naguiat.
Upon presentment on its maturity date, the Security Bank check was
dishonored for insufficiency of funds. On the following day, 12
September 1980, Queaño requested Security Bank to stop payment of
her postdated check, but the bank rejected the request pursuant to its
policy not to honor such requests if the check is drawn against
insufficient funds.6
On 16 October 1980, Queaño received a letter from Naguiat’s lawyer,
demanding settlement of the loan. Shortly thereafter, Queaño and
one Ruby Ruebenfeldt (Ruebenfeldt) met with Naguiat. At the
meeting, Queaño told Naguiat that she did not receive the proceeds
of the loan, adding that the checks were retained by Ruebenfeldt,
who purportedly was Naguiat’s agent.7
Naguiat applied for the extrajudicial foreclosure of the mortgage
with the Sheriff of Rizal Province, who then scheduled the
foreclosure sale on 14 August 1981. Three days before the scheduled
sale, Queaño filed the case before the Pasay City RTC,8 seeking the
annulment of the mortgage deed. The trial court eventually stopped
the auction sale.9
On 8 March 1991, the RTC rendered judgment, declaring the Deed of
Real Estate Mortgage null and void, and ordering Naguiat to return
24
Loans in General – Articles 1933-1934, Art 1305; 1318
to Queaño the owner’s duplicates of her titles to the mortgaged
lots.10 Naguiat appealed the decision before the Court of Appeals,
making no less than eleven assignments of error. The Court of
Appeals promulgated the decision now assailed before us that
affirmed in toto the RTC decision. Hence, the present petition.
Naguiat questions the findings of facts made by the Court of
Appeals, especially on the issue of whether Queaño had actually
received the loan proceeds which were supposed to be covered by
the two checks Naguiat had issued or indorsed. Naguiat claims that
being a notarial instrument or public document, the mortgage deed
enjoys the presumption that the recitals therein are true. Naguiat
also questions the admissibility of various representations and
pronouncements of Ruebenfeldt, invoking the rule on the non-
binding effect of the admissions of third persons.11
The resolution of the issues presented before this Court by Naguiat
involves the determination of facts, a function which this Court does
not exercise in an appeal by certiorari. Under Rule 45 which governs
appeal by certiorari, only questions of law may be raised12 as the
Supreme Court is not a trier of facts.13 The resolution of factual issues
is the function of lower courts, whose findings on these matters are
received with respect and are in fact generally binding on the
Supreme Court.14 A question of law which the Court may pass upon
must not involve an examination of the probative value of the
evidence presented by the litigants.15 There is a question of law in a
given case when the doubt or difference arises as to what the law is
on a certain state of facts; there is a question of fact when the doubt
or difference arises as to the truth or the falsehood of alleged facts. 16
Surely, there are established exceptions to the rule on the
conclusiveness of the findings of facts of the lower courts. 17 But
Naguiat’s case does not fall under any of the exceptions. In any
event, both the decisions of the appellate and trial courts are
supported by the evidence on record and the applicable laws.
Against the common finding of the courts below, Naguiat vigorously
insists that Queaño received the loan proceeds. Capitalizing on the
status of the mortgage deed as a public document, she cites the rule
that a public document enjoys the presumption of validity and
truthfulness of its contents. The Court of Appeals, however, is
correct in ruling that the presumption of truthfulness of the recitals
in a public document was defeated by the clear and convincing
evidence in this case that pointed to the absence of
consideration.18 This Court has held that the presumption of
truthfulness engendered by notarized documents is rebuttable,
yielding as it does to clear and convincing evidence to the contrary,
as in this case.19
On the other hand, absolutely no evidence was submitted by
Naguiat that the checks she issued or endorsed were actually
encashed or deposited. The mere issuance of the checks did not
result in the perfection of the contract of loan. For the Civil Code
provides that the delivery of bills of exchange and mercantile
documents such as checks shall produce the effect of payment only
when they have been cashed.20 It is only after the checks have
produced the effect of payment that the contract of loan may be
deemed perfected. Art. 1934 of the Civil Code provides:
"An accepted promise to deliver something by way of commodatum
or simple loan is binding upon the parties, but the commodatum or
simple loan itself shall not be perfected until the delivery of the
object of the contract."
A loan contract is a real contract, not consensual, and, as such, is
perfected only upon the delivery of the object of the contract. 21 In this
case, the objects of the contract are the loan proceeds which Queaño
would enjoy only upon the encashment of the checks signed or
indorsed by Naguiat. If indeed the checks were encashed or
deposited, Naguiat would have certainly presented the
corresponding documentary evidence, such as the returned checks
and the pertinent bank records. Since Naguiat presented no such
25
Loans in General – Articles 1933-1934, Art 1305; 1318
proof, it follows that the checks were not encashed or credited to
Queaño’s account.1awphi1.nét
Naguiat questions the admissibility of the various written
representations made by Ruebenfeldt on the ground that they could
not bind her following the res inter alia acta alteri nocere non debet
rule. The Court of Appeals rejected the argument, holding that since
Ruebenfeldt was an authorized representative or agent of Naguiat
the situation falls under a recognized exception to the rule. 22 Still,
Naguiat insists that Ruebenfeldt was not her agent.
Suffice to say, however, the existence of an agency relationship
between Naguiat and Ruebenfeldt is supported by ample evidence.
As correctly pointed out by the Court of Appeals, Ruebenfeldt was
not a stranger or an unauthorized person. Naguiat instructed
Ruebenfeldt to withhold from Queaño the checks she issued or
indorsed to Queaño, pending delivery by the latter of additional
collateral. Ruebenfeldt served as agent of Naguiat on the loan
application of Queaño’s friend, Marilou Farralese, and it was in
connection with that transaction that Queaño came to know
Naguiat.23 It was also Ruebenfeldt who accompanied Queaño in her
meeting with Naguiat and on that occasion, on her own and without
Queaño asking for it, Reubenfeldt actually drew a check for the sum
of ₱220,000.00 payable to Naguiat, to cover for Queaño’s alleged
liability to Naguiat under the loan agreement.24
The Court of Appeals recognized the existence of an "agency by
estoppel25 citing Article 1873 of the Civil Code.26Apparently, it
considered that at the very least, as a consequence of the interaction
between Naguiat and Ruebenfeldt, Queaño got the impression that
Ruebenfeldt was the agent of Naguiat, but Naguiat did nothing to
correct Queaño’s impression. In that situation, the rule is clear. One
who clothes another with apparent authority as his agent, and holds
him out to the public as such, cannot be permitted to deny the
authority of such person to act as his agent, to the prejudice of
innocent third parties dealing with such person in good faith, and in
the honest belief that he is what he appears to be.27 The Court of
Appeals is correct in invoking the said rule on agency by
estoppel.1awphi1.nét
More fundamentally, whatever was the true relationship between
Naguiat and Ruebenfeldt is irrelevant in the face of the fact that the
checks issued or indorsed to Queaño were never encashed or
deposited to her account of Naguiat.
All told, we find no compelling reason to disturb the finding of the
courts a quo that the lender did not remit and the borrower did not
receive the proceeds of the loan. That being the case, it follows that
the mortgage which is supposed to secure the loan is null and void.
The consideration of the mortgage contract is the same as that of the
principal contract from which it receives life, and without which it
cannot exist as an independent contract.28 A mortgage contract being
a mere accessory contract, its validity would depend on the validity
of the loan secured by it.29
WHEREFORE, the petition is denied and the assailed decision is
affirmed. Costs against petitioner.
SO ORDERED.
FACTS
Queaño applied with Naguiat a loan for P200,000, which the latter
granted. Naguiat indorsed to Queaño Associated bank Check No.
090990 for the amount of P95,000 and issued also her own
Filmanbank Check to the order of Queaño for the amount of P95,000.
The proceeds of these checks were to constitute the loan granted by
Naguiat to Queaño. To secure the loan, Queaño executed a Deed of
Real Estate Mortgage in favor of Naguiat, and surrendered the
owner’s duplicates of titles of the mortgaged properties. The deed
was notarized and Queaño issued to Naguiat a promissory note for
the amount of P200,000. Queaño also issued a post-dated check
amounting to P200,000 payable to the order of Naguait. The check
was dishonoured for insufficiency of funds. Demand was sent to
26
Loans in General – Articles 1933-1934, Art 1305; 1318

Queaño. Shortly, Queaño, and one Ruby Reubenfeldt met with

Naguiat. Queaño told Naguiat that she did not receive the loan
proceeds, adding that the checks were retained by Reubenfeldt, who
purportedly was Naguiat’s agent.

Naguiat applied for extrajudicial foreclosure of the mortgage. RTC

declared the Deed as null and void and ordered Naguiat to return to
Queaño the owner’s duplicates of titles of the mortgaged lots.

ISSUE
Whether or not the issuance of check resulted in the perfection of the
loan contract.

HELD
The Court held in the negative. No evidence was submitted by
Naguiat that the checks she issued or endorsed were actually
encashed or deposited. The mere issuance of the checks did not
result in the perfection of the contract of loan. The Civil Code
provides that the delivery of bills of exchange and mercantile
documents such as checks shall produce the effect of payment only
when they have been cashed. It is only after the checks have been
produced the effect of payment that the contract of loan may have
been perfected.

Article 1934 of the Civil Code provides: An accepted promise to

deliver something by way of commodatum or simple loan is binding
upon the parties, but the commodatum or simple loan itsel shall not
be perfected until the delivery of the object of the contract. A loan
contract is a real contract, not consensual, and as such, is perfected
only upon the delivery of the objects of the contract.

27
Loans in General – Articles 1933-1934, Art 1305; 1318
G.R. No. 154878 March 16, 2007
CAROLYN M. GARCIA, Petitioner,
vs.
RICA MARIE S. THIO, Respondent.
DECISION
CORONA, J.:
Assailed in this petition for review on certiorari1 are the June 19, 2002
decision2 and August 20, 2002 resolution3 of the Court of Appeals
(CA) in CA-G.R. CV No. 56577 which set aside the February 28, 1997
decision of the Regional Trial Court (RTC) of Makati City, Branch 58.
Sometime in February 1995, respondent Rica Marie S. Thio received
from petitioner Carolyn M. Garcia a crossed check 4 dated February
24, 1995 in the amount of US$100,000 payable to the order of a
certain Marilou Santiago.5Thereafter, petitioner received from
respondent every month (specifically, on March 24, April 26, June 26
and July 26, all in 1995) the amount of US$3,000 6 and ₱76,5007 on July
26,8 August 26, September 26 and October 26, 1995.
In June 1995, respondent received from petitioner another crossed
check9 dated June 29, 1995 in the amount of ₱500,000, also payable to
the order of Marilou Santiago.10 Consequently, petitioner received
from respondent the amount of ₱20,000 every month on August 5,
September 5, October 5 and November 5, 1995.11
According to petitioner, respondent failed to pay the principal
amounts of the loans (US$100,000 and ₱500,000) when they fell due.
Thus, on February 22, 1996, petitioner filed a complaint for sum of
money and damages in the RTC of Makati City, Branch 58 against
respondent, seeking to collect the sums of US$100,000, with interest
thereon at 3% a month from October 26, 1995 and ₱500,000, with
interest thereon at 4% a month from November 5, 1995, plus
attorney’s fees and actual damages.12
Petitioner alleged that on February 24, 1995, respondent borrowed
from her the amount of US$100,000 with interest thereon at the rate
of 3% per month, which loan would mature on October 26,
1995.13 The amount of this loan was covered by the first check. On
June 29, 1995, respondent again borrowed the amount of ₱500,000 at
an agreed monthly interest of 4%, the maturity date of which was on
November 5, 1995.14 The amount of this loan was covered by the
second check. For both loans, no promissory note was executed since
petitioner and respondent were close friends at the
time.15 Respondent paid the stipulated monthly interest for both
loans but on their maturity dates, she failed to pay the principal
amounts despite repeated demands.161awphi1.nét
Respondent denied that she contracted the two loans with petitioner
and countered that it was Marilou Santiago to whom petitioner lent
the money. She claimed she was merely asked by petitioner to give
the crossed checks to Santiago.17 She issued the checks for ₱76,000
and ₱20,000 not as payment of interest but to accommodate
petitioner’s request that respondent use her own checks instead of
Santiago’s.18
In a decision dated February 28, 1997, the RTC ruled in favor of
petitioner.19 It found that respondent borrowed from petitioner the
amounts of US$100,000 with monthly interest of 3% and ₱500,000 at
a monthly interest of 4%:20
WHEREFORE, finding preponderance of evidence to sustain the
instant complaint, judgment is hereby rendered in favor of
[petitioner], sentencing [respondent] to pay the former the amount
of:
1. [US$100,000.00] or its peso equivalent with interest
thereon at 3% per month from October 26, 1995 until fully
paid;
28
Loans in General – Articles 1933-1934, Art 1305; 1318
2. ₱500,000.00 with interest thereon at 4% per month from
November 5, 1995 until fully paid.
3. ₱100,000.00 as and for attorney’s fees; and
4. ₱50,000.00 as and for actual damages.
For lack of merit, [respondent’s] counterclaim is perforce dismissed.
With costs against [respondent].
IT IS SO ORDERED.21
On appeal, the CA reversed the decision of the RTC and ruled that
there was no contract of loan between the parties:
A perusal of the record of the case shows that [petitioner] failed to
substantiate her claim that [respondent] indeed borrowed money
from her. There is nothing in the record that shows that
[respondent] received money from [petitioner]. What is evident is
the fact that [respondent] received a MetroBank [crossed] check
dated February 24, 1995 in the sum of US$100,000.00, payable to the
order of Marilou Santiago and a CityTrust [crossed] check dated
June 29, 1995 in the amount of ₱500,000.00, again payable to the
order of Marilou Santiago, both of which were issued by
[petitioner]. The checks received by [respondent], being crossed,
may not be encashed but only deposited in the bank by the payee
thereof, that is, by Marilou Santiago herself.
It must be noted that crossing a check has the following effects: (a)
the check may not be encashed but only deposited in the bank; (b)
the check may be negotiated only once—to one who has an account
with the bank; (c) and the act of crossing the check serves as warning
to the holder that the check has been issued for a definite purpose so
that he must inquire if he has received the check pursuant to that
purpose, otherwise, he is not a holder in due course.
Consequently, the receipt of the [crossed] check by [respondent] is
not the issuance and delivery to the payee in contemplation of law
since the latter is not the person who could take the checks as a
holder, i.e., as a payee or indorsee thereof, with intent to transfer title
thereto. Neither could she be deemed as an agent of Marilou
Santiago with respect to the checks because she was merely
facilitating the transactions between the former and [petitioner].
With the foregoing circumstances, it may be fairly inferred that there
were really no contracts of loan that existed between the parties. x x
x (emphasis supplied)22
Hence this petition.23
As a rule, only questions of law may be raised in a petition for
review on certiorari under Rule 45 of the Rules of Court. However,
this case falls under one of the exceptions, i.e., when the factual
findings of the CA (which held that there were no contracts of loan
between petitioner and respondent) and the RTC (which held
that there werecontracts of loan) are contradictory.24
The petition is impressed with merit.
A loan is a real contract, not consensual, and as such is perfected
only upon the delivery of the object of the contract. 25 This is evident
in Art. 1934 of the Civil Code which provides:
An accepted promise to deliver something by way of commodatum
or simple loan is binding upon the parties, but the commodatum or
simple loan itself shall not be perfected until the delivery of the
object of the contract. (Emphasis supplied)
Upon delivery of the object of the contract of loan (in this case the
money received by the debtor when the checks were encashed) the
debtor acquires ownership of such money or loan proceeds and is
bound to pay the creditor an equal amount.26
29
Loans in General – Articles 1933-1934, Art 1305; 1318
It is undisputed that the checks were delivered to respondent.
However, these checks were crossed and payable not to the order of
respondent but to the order of a certain Marilou Santiago. Thus the
main question to be answered is: who borrowed money from
petitioner — respondent or Santiago?
Petitioner insists that it was upon respondent’s instruction that both
checks were made payable to Santiago.27 She maintains that it was
also upon respondent’s instruction that both checks were delivered
to her (respondent) so that she could, in turn, deliver the same to
Santiago.28 Furthermore, she argues that once respondent received
the checks, the latter had possession and control of them such that
she had the choice to either forward them to Santiago (who was
already her debtor), to retain them or to return them to petitioner.29
We agree with petitioner. Delivery is the act by which the res or
substance thereof is placed within the actual or constructive
possession or control of another.30 Although respondent did not
physically receive the proceeds of the checks, these instruments were
placed in her control and possession under an arrangement whereby
she actually re-lent the amounts to Santiago.
Several factors support this conclusion.
First, respondent admitted that petitioner did not personally know
Santiago.31 It was highly improbable that petitioner would grant two
loans to a complete stranger without requiring as much as
promissory notes or any written acknowledgment of the debt
considering that the amounts involved were quite big. Respondent,
on the other hand, already had transactions with Santiago at that
time.32
Second, Leticia Ruiz, a friend of both petitioner and respondent (and
whose name appeared in both parties’ list of witnesses) testified that
respondent’s plan was for petitioner to lend her money at a monthly
interest rate of 3%, after which respondent would lend the same
amount to Santiago at a higher rate of 5% and realize a profit of
2%.33 This explained why respondent instructed petitioner to make
the checks payable to Santiago. Respondent has not shown any
reason why Ruiz’ testimony should not be believed.
Third, for the US$100,000 loan, respondent admitted issuing her own
checks in the amount of ₱76,000 each (peso equivalent of US$3,000)
for eight months to cover the monthly interest. For the ₱500,000 loan,
she also issued her own checks in the amount of ₱20,000 each for
four months.34 According to respondent, she merely accommodated
petitioner’s request for her to issue her own checks to cover the
interest payments since petitioner was not personally acquainted
with Santiago.35 She claimed, however, that Santiago would replace
the checks with cash.36Her explanation is simply incredible. It is
difficult to believe that respondent would put herself in a position
where she would be compelled to pay interest, from her own funds,
for loans she allegedly did not contract. We declared in one case that:
In the assessment of the testimonies of witnesses, this Court is
guided by the rule that for evidence to be believed, it must not only
proceed from the mouth of a credible witness, but must be credible
in itself such as the common experience of mankind can approve as
probable under the circumstances. We have no test of the truth of
human testimony except its conformity to our knowledge,
observation, and experience. Whatever is repugnant to these belongs
to the miraculous, and is outside of juridical cognizance. 37
Fourth, in the petition for insolvency sworn to and filed by Santiago,
it was respondent, not petitioner, who was listed as one of her
(Santiago’s) creditors.38
Last, respondent inexplicably never presented Santiago as a witness
to corroborate her story.39 The presumption is that "evidence
willfully suppressed would be adverse if produced." 40 Respondent
was not able to overturn this presumption.
We hold that the CA committed reversible error when it ruled that
respondent did not borrow the amounts of US$100,000 and ₱500,000
30
Loans in General – Articles 1933-1934, Art 1305; 1318
from petitioner. We instead agree with the ruling of the RTC making
respondent liable for the principal amounts of the loans.
We do not, however, agree that respondent is liable for the 3% and
4% monthly interest for the US$100,000 and ₱500,000 loans
respectively. There was no written proof of the interest payable
except for the verbal agreement that the loans would earn 3% and 4%
interest per month. Article 1956 of the Civil Code provides that "[n]o
interest shall be due unless it has been expressly stipulated in
writing."
Be that as it may, while there can be no stipulated interest, there can
be legal interest pursuant to Article 2209 of the Civil Code. It is well-
settled that:
When the obligation is breached, and it consists in the payment of a
sum of money, i.e., a loan or forbearance of money, the interest due
should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the
time it is judicially demanded. In the absence of stipulation, the rate
of interest shall be 12% per annum to be computed from default, i.e.,
from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.41
Hence, respondent is liable for the payment of legal
interest per annum to be computed from November 21, 1995, the date
when she received petitioner’s demand letter.42 From the finality of
the decision until it is fully paid, the amount due shall earn interest
at 12% per annum, the interim period being deemed equivalent to a
forbearance of credit.43
(1) Whether or not there was a contract of loan between petitioner and
The award of actual damages in the amount of ₱50,000 and ₱100,000
attorney’s fees is deleted since the RTC decision did not explain the
(2) Who borrowed money from petitioner, the respondent or Marilou
factual bases for these damages.
WHEREFORE, the petition is hereby GRANTED and the June 19,
2002 decision and August 20, 2002 resolution of the Court of Appeals
in CA-G.R. CV No. 56577 are REVERSED and SET ASIDE. The
February 28, 1997 decision of the Regional Trial Court in Civil Case
No. 96-266 is AFFIRMED with the MODIFICATION that
respondent is directed to pay petitioner the amounts of US$100,000
and ₱500,000 at 12% per annum interest from November 21, 1995
until the finality of the decision. The total amount due as of the date
of finality will earn interest of 12% perannum until fully paid. The
award of actual damages and attorney’s fees is deleted.
SO ORDERED.
FACTS
Respondent Thio received from petitioner Garcia two crossed
checks which amount to US$100,000 and US$500,000, respectively,
payable to the order of Marilou Santiago. According to petitioner,
respondent failed to pay the principal amounts of the loans when
they fell due and so she filed a complaint for sum of money and
damages with the RTC. Respondent denied that she contracted the
two loans and countered that it was Marilou Satiago to whom
petitioner lent the money. She claimed she was merely asked y
petitioner to give the checks to Santiago. She issued the checks for
P76,000 and P20,000 not as payment of interest but to accommodate
petitioner’s request that respondent use her own checks instead of
Santiago’s.
RTC ruled in favor of petitioner. CA reversed RTC and ruled
that there was no contract of loan between the parties.
ISSUE
respondent.
Santiago?
HELD
31
Loans in General – Articles 1933-1934, Art 1305; 1318

(1) The Court held in the affirmative. A loan is a real

contract, not consensual, and as such I perfected only upon the
delivery of the object of the contract. Upon delivery of the contract of
loan (in this case the money received by the debtor when the checks
were encashed) the debtor acquires ownership of such money or
loan proceeds and is bound to pay the creditor an equal amount. It is
undisputed that the checks were delivered to respondent.

(2) However, the checks were crossed and payable not

to the order of the respondent but to the order of a certain Marilou
Santiago. Delivery is the act by which the res or substance is thereof
placed within the actual or constructive possession or control of
another. Although respondent did not physically receive the
proceeds of the checks, these instruments were placed in her control
and possession under an arrangement whereby she actually re-lent
the amount to Santiago.

Petition granted; judgment and resolution reversed and set aside.

32
Loans in General – Articles 1933-1934, Art 1305; 1318
G.R. No. 174269 May 8, 2009
POLO S. PANTALEON, Petitioner,
vs.
AMERICAN EXPRESS INTERNATIONAL, INC., Respondent.
DECISION
TINGA, J.:
The petitioner, lawyer Polo Pantaleon, his wife Julialinda, daughter
Anna Regina and son Adrian Roberto, joined an escorted tour of
Western Europe organized by Trafalgar Tours of Europe, Ltd., in
October of 1991. The tour group arrived in Amsterdam in the
afternoon of 25 October 1991, the second to the last day of the tour.
As the group had arrived late in the city, they failed to engage in any
sight-seeing. Instead, it was agreed upon that they would start early
the next day to see the entire city before ending the tour.
The following day, the last day of the tour, the group arrived at the
Coster Diamond House in Amsterdam around 10 minutes before
9:00 a.m. The group had agreed that the visit to Coster should end by
9:30 a.m. to allow enough time to take in a guided city tour of
Amsterdam. The group was ushered into Coster shortly before 9:00
a.m., and listened to a lecture on the art of diamond polishing that
lasted for around ten minutes.1 Afterwards, the group was led to the
store’s showroom to allow them to select items for purchase. Mrs.
Pantaleon had already planned to purchase even before the tour
began a 2.5 karat diamond brilliant cut, and she found a diamond
close enough in approximation that she decided to buy.2 Mrs.
Pantaleon also selected for purchase a pendant and a chain, 3 all of
which totaled U.S. $13,826.00.
To pay for these purchases, Pantaleon presented his American
Express credit card together with his passport to the Coster sales
clerk. This occurred at around 9:15 a.m., or 15 minutes before the
tour group was slated to depart from the store. The sales clerk took
the card’s imprint, and asked Pantaleon to sign the charge slip. The
charge purchase was then referred electronically to respondent’s
Amsterdam office at 9:20 a.m.
Ten minutes later, the store clerk informed Pantaleon that his
AmexCard had not yet been approved. His son, who had already
boarded the tour bus, soon returned to Coster and informed the
other members of the Pantaleon family that the entire tour group
was waiting for them. As it was already 9:40 a.m., and he was
already worried about further inconveniencing the tour group,
Pantaleon asked the store clerk to cancel the sale. The store manager
though asked plaintiff to wait a few more minutes. After 15 minutes,
the store manager informed Pantaleon that respondent had
demanded bank references. Pantaleon supplied the names of his
depositary banks, then instructed his daughter to return to the bus
and apologize to the tour group for the delay.
At around 10:00 a.m, or around 45 minutes after Pantaleon had
presented his AmexCard, and 30 minutes after the tour group was
supposed to have left the store, Coster decided to release the items
even without respondent’s approval of the purchase. The spouses
Pantaleon returned to the bus. It is alleged that their offers of
apology were met by their tourmates with stony silence.4 The tour
group’s visible irritation was aggravated when the tour guide
announced that the city tour of Amsterdam was to be canceled due
to lack of remaining time, as they had to catch a 3:00 p.m. ferry at
Calais, Belgium to London.5 Mrs. Pantaleon ended up weeping,
while her husband had to take a tranquilizer to calm his nerves.
It later emerged that Pantaleon’s purchase was first transmitted for
approval to respondent’s Amsterdam office at 9:20 a.m., Amsterdam
time, then referred to respondent’s Manila office at 9:33 a.m, then
finally approved at 10:19 a.m., Amsterdam time. 6 The Approval
Code was transmitted to respondent’s Amsterdam office at 10:38
a.m., several minutes after petitioner had already left Coster, and 78
minutes from the time the purchases were electronically transmitted
by the jewelry store to respondent’s Amsterdam office.
33
Loans in General – Articles 1933-1934, Art 1305; 1318
After the star-crossed tour had ended, the Pantaleon family
proceeded to the United States before returning to Manila on 12
November 1992. While in the United States, Pantaleon continued to
use his AmEx card, several times without hassle or delay, but with
two other incidents similar to the Amsterdam brouhaha. On 30
October 1991, Pantaleon purchased golf equipment amounting to US
$1,475.00 using his AmEx card, but he cancelled his credit card
purchase and borrowed money instead from a friend, after more
than 30 minutes had transpired without the purchase having been
approved. On 3 November 1991, Pantaleon used the card to
purchase children’s shoes worth $87.00 at a store in Boston, and it
took 20 minutes before this transaction was approved by respondent.
On 4 March 1992, after coming back to Manila, Pantaleon sent a
letter7 through counsel to the respondent, demanding an apology for
the "inconvenience, humiliation and embarrassment he and his
family thereby suffered" for respondent’s refusal to provide credit
authorization for the aforementioned purchases.8 In response,
respondent sent a letter dated 24 March 1992, 9 stating among others
that the delay in authorizing the purchase from Coster was
attributable to the circumstance that the charged purchase of US
$13,826.00 "was out of the usual charge purchase pattern
established."10 Since respondent refused to accede to Pantaleon’s
demand for an apology, the aggrieved cardholder instituted an
action for damages with the Regional Trial Court (RTC) of Makati
City, Branch 145.11 Pantaleon prayed that he be awarded
₱2,000,000.00, as moral damages; ₱500,000.00, as exemplary
damages; ₱100,000.00, as attorney’s fees; and ₱50,000.00 as litigation
expenses.12
On 5 August 1996, the Makati City RTC rendered a decision 13 in
favor of Pantaleon, awarding him ₱500,000.00 as moral damages,
₱300,000.00 as exemplary damages, ₱100,000.00 as attorney’s fees,
and ₱85,233.01 as expenses of litigation. Respondent filed a Notice of
Appeal, while Pantaleon moved for partial reconsideration, praying
that the trial court award the increased amount of moral and
exemplary damages he had prayed for.14 The RTC denied
Pantaleon’s motion for partial reconsideration, and thereafter gave
due course to respondent’s Notice of Appeal.15
On 18 August 2006, the Court of Appeals rendered a
decision16 reversing the award of damages in favor of Pantaleon,
holding that respondent had not breached its obligations to
petitioner. Hence, this petition.
The key question is whether respondent, in connection with the
aforementioned transactions, had committed a breach of its
obligations to Pantaleon. In addition, Pantaleon submits that even
assuming that respondent had not been in breach of its obligations, it
still remained liable for damages under Article 21 of the Civil Code.
The RTC had concluded, based on the testimonial representations of
Pantaleon and respondent’s credit authorizer, Edgardo Jaurigue, that
the normal approval time for purchases was "a matter of seconds."
Based on that standard, respondent had been in clear delay with
respect to the three subject transactions. As it appears, the Court of
Appeals conceded that there had been delay on the part of
respondent in approving the purchases. However, it made two
critical conclusions in favor of respondent. First, the appellate court
ruled that the delay was not attended by bad faith, malice, or gross
negligence. Second, it ruled that respondent "had exercised diligent
efforts to effect the approval" of the purchases, which were "not in
accordance with the charge pattern" petitioner had established for
himself, as exemplified by the fact that at Coster, he was "making his
very first single charge purchase of US$13,826," and "the record of
[petitioner]’s past spending with [respondent] at the time does not
favorably support his ability to pay for such purchase."17
On the premise that there was an obligation on the part of
respondent "to approve or disapprove with dispatch the charge
purchase," petitioner argues that the failure to timely approve or
disapprove the purchase constituted mora solvendi on the part of
respondent in the performance of its obligation. For its part,
respondent characterizes the depiction by petitioner of its obligation
34
Loans in General – Articles 1933-1934, Art 1305; 1318
to him as "to approve purchases instantaneously or in a matter of
seconds."
Petitioner correctly cites that under mora solvendi, the three
requisites for a finding of default are that the obligation is
demandable and liquidated; the debtor delays performance; and the
creditor judicially or extrajudicially requires the debtor’s
performance.18 Petitioner asserts that the Court of Appeals had
wrongly applied the principle of mora accipiendi, which relates to
delay on the part of the obligee in accepting the performance of the
obligation by the obligor. The requisites of mora accipiendi are: an
offer of performance by the debtor who has the required capacity;
the offer must be to comply with the prestation as it should be
performed; and the creditor refuses the performance without just
cause.19 The error of the appellate court, argues petitioner, is in
relying on the invocation by respondent of "just cause" for the delay,
since while just cause is determinative of mora accipiendi, it is not so
with the case of mora solvendi.
We can see the possible source of confusion as to which type of mora
to appreciate. Generally, the relationship between a credit card
provider and its card holders is that of creditor-debtor,20 with the
card company as the creditor extending loans and credit to the card
holder, who as debtor is obliged to repay the creditor. This
relationship already takes exception to the general rule that as
between a bank and its depositors, the bank is deemed as the debtor
while the depositor is considered as the creditor.21 Petitioner is
asking us, not baselessly, to again shift perspectives and again see
the credit card company as the debtor/obligor, insofar as it has the
obligation to the customer as creditor/obligee to act promptly on its
purchases on credit.
Ultimately, petitioner’s perspective appears more sensible than if we
were to still regard respondent as the creditor in the context of this
cause of action. If there was delay on the part of respondent in its
normal role as creditor to the cardholder, such delay would not have
been in the acceptance of the performance of the debtor’s obligation
(i.e., the repayment of the debt), but it would be delay in the
extension of the credit in the first place. Such delay would not fall
under mora accipiendi, which contemplates that the obligation of the
debtor, such as the actual purchases on credit, has already been
constituted. Herein, the establishment of the debt itself (purchases on
credit of the jewelry) had not yet been perfected, as it remained
pending the approval or consent of the respondent credit card
company.
Still, in order for us to appreciate that respondent was in mora
solvendi, we will have to first recognize that there was indeed an
obligation on the part of respondent to act on petitioner’s purchases
with "timely dispatch," or for the purposes of this case, within a
period significantly less than the one hour it apparently took before
the purchase at Coster was finally approved.
The findings of the trial court, to our mind, amply established that
the tardiness on the part of respondent in acting on petitioner’s
purchase at Coster did constitute culpable delay on its part in
complying with its obligation to act promptly on its customer’s
purchase request, whether such action be favorable or unfavorable.
We quote the trial court, thus:
As to the first issue, both parties have testified that normal approval
time for purchases was a matter of seconds.
Plaintiff testified that his personal experience with the use of the card
was that except for the three charge purchases subject of this case,
approvals of his charge purchases were always obtained in a matter
of seconds.
Defendant’s credit authorizer Edgardo Jaurique likewise testified:
Q. – You also testified that on normal occasions, the normal
approval time for charges would be 3 to 4 seconds?
35
Loans in General – Articles 1933-1934, Art 1305; 1318
A. – Yes, Ma’am.
Both parties likewise presented evidence that the processing and
approval of plaintiff’s charge purchase at the Coster Diamond House
was way beyond the normal approval time of a "matter of seconds".
Plaintiff testified that he presented his AmexCard to the sales clerk at
Coster, at 9:15 a.m. and by the time he had to leave the store at 10:05
a.m., no approval had yet been received. In fact, the Credit
Authorization System (CAS) record of defendant at Phoenix Amex
shows that defendant’s Amsterdam office received the request to
approve plaintiff’s charge purchase at 9:20 a.m., Amsterdam time or
01:20, Phoenix time, and that the defendant relayed its approval to
Coster at 10:38 a.m., Amsterdam time, or 2:38, Phoenix time, or a
total time lapse of one hour and [18] minutes. And even then, the
approval was conditional as it directed in computerese [sic] "Positive
Identification of Card holder necessary further charges require bank
information due to high exposure. By Jack Manila."
The delay in the processing is apparent to be undue as shown from
the frantic successive queries of Amexco Amsterdam which reads:
"US$13,826. Cardmember buying jewels. ID seen. Advise how long
will this take?" They were sent at 01:33, 01:37, 01:40, 01:45, 01:52 and
02:08, all times Phoenix. Manila Amexco could be unaware of the
need for speed in resolving the charge purchase referred to it, yet it
sat on its hand, unconcerned.
xxx
To repeat, the Credit Authorization System (CAS) record on the
Amsterdam transaction shows how Amexco Netherlands viewed the
delay as unusually frustrating. In sequence expressed in Phoenix
time from 01:20 when the charge purchased was referred for
authorization, defendants own record shows:
01:22 – the authorization is referred to Manila Amexco
01:32 – Netherlands gives information that the identification
of the cardmember has been presented and he is buying
jewelries worth US $13,826.
01:33 – Netherlands asks "How long will this take?"
02:08 – Netherlands is still asking "How long will this take?"
The Court is convinced that defendants delay constitute[s] breach of
its contractual obligation to act on his use of the card abroad "with
special handling."22 (Citations omitted)
xxx
Notwithstanding the popular notion that credit card purchases are
approved "within seconds," there really is no strict, legally
determinative point of demarcation on how long must it take for a
credit card company to approve or disapprove a customer’s
purchase, much less one specifically contracted upon by the parties.
Yet this is one of those instances when "you’d know it when you’d
see it," and one hour appears to be an awfully long, patently
unreasonable length of time to approve or disapprove a credit card
purchase. It is long enough time for the customer to walk to a bank a
kilometer away, withdraw money over the counter, and return to the
store.
Notably, petitioner frames the obligation of respondent as "to
approve or disapprove" the purchase "in timely dispatch," and not
"to approve the purchase instantaneously or within seconds."
Certainly, had respondent disapproved petitioner’s purchase "within
seconds" or within a timely manner, this particular action would
have never seen the light of day. Petitioner and his family would
have returned to the bus without delay – internally humiliated
perhaps over the rejection of his card – yet spared the shame of being
held accountable by newly-made friends for making them miss the
chance to tour the city of Amsterdam.
36
Loans in General – Articles 1933-1934, Art 1305; 1318
We do not wish do dispute that respondent has the right, if not the
obligation, to verify whether the credit it is extending upon on a
particular purchase was indeed contracted by the cardholder, and
that the cardholder is within his means to make such transaction.
The culpable failure of respondent herein is not the failure to timely
approve petitioner’s purchase, but the more elemental failure to
timely act on the same, whether favorably or unfavorably. Even
assuming that respondent’s credit authorizers did not have sufficient
basis on hand to make a judgment, we see no reason why
respondent could not have promptly informed petitioner the reason
for the delay, and duly advised him that resolving the same could
take some time. In that way, petitioner would have had informed
basis on whether or not to pursue the transaction at Coster, given the
attending circumstances. Instead, petitioner was left uncomfortably
dangling in the chilly autumn winds in a foreign land and soon
forced to confront the wrath of foreign folk.
Moral damages avail in cases of breach of contract where the
defendant acted fraudulently or in bad faith, and the court should
find that under the circumstances, such damages are due. The
findings of the trial court are ample in establishing the bad faith and
unjustified neglect of respondent, attributable in particular to the
"dilly-dallying" of respondent’s Manila credit authorizer, Edgardo
Jaurique.23 Wrote the trial court:
While it is true that the Cardmembership Agreement, which
defendant prepared, is silent as to the amount of time it should take
defendant to grant authorization for a charge purchase, defendant
acknowledged that the normal time for approval should only be
three to four seconds. Specially so with cards used abroad which
requires "special handling", meaning with priority. Otherwise, the
object of credit or charge cards would be lost; it would be so
inconvenient to use that buyers and consumers would be better off
carrying bundles of currency or traveller’s checks, which can be
delivered and accepted quickly. Such right was not accorded to
plaintiff in the instances complained off for reasons known only to
defendant at that time. This, to the Court’s mind, amounts to a
wanton and deliberate refusal to comply with its contractual
obligations, or at least abuse of its rights, under the contract. 24
xxx
The delay committed by defendant was clearly attended by
unjustified neglect and bad faith, since it alleges to have consumed
more than one hour to simply go over plaintiff’s past credit history
with defendant, his payment record and his credit and bank
references, when all such data are already stored and readily
available from its computer. This Court also takes note of the fact
that there is nothing in plaintiff’s billing history that would warrant
the imprudent suspension of action by defendant in processing the
purchase. Defendant’s witness Jaurique admits:
Q. – But did you discover that he did not have any
outstanding account?
A. – Nothing in arrears at that time.
Q. – You were well aware of this fact on this very date?
A. – Yes, sir.
Mr. Jaurique further testified that there were no "delinquencies" in
plaintiff’s account.25
It should be emphasized that the reason why petitioner is entitled to
damages is not simply because respondent incurred delay, but
because the delay, for which culpability lies under Article 1170, led
to the particular injuries under Article 2217 of the Civil Code for
which moral damages are remunerative.26 Moral damages do not
avail to soothe the plaints of the simply impatient, so this decision
should not be cause for relief for those who time the length of their
credit card transactions with a stopwatch. The somewhat unusual
attending circumstances to the purchase at Coster – that there was a
37
Loans in General – Articles 1933-1934, Art 1305; 1318
deadline for the completion of that purchase by petitioner before any
delay would redound to the injury of his several traveling
companions – gave rise to the moral shock, mental anguish, serious
anxiety, wounded feelings and social humiliation sustained by the
petitioner, as concluded by the RTC.27 Those circumstances are fairly
unusual, and should not give rise to a general entitlement for
damages under a more mundane set of facts.
We sustain the amount of moral damages awarded to petitioner by
the RTC. There is no hard-and-fast rule in determining what would
be a fair and reasonable amount of moral damages, since each case
must be governed by its own peculiar facts, however, it must be
commensurate to the loss or injury suffered.28 Petitioner’s original
prayer for ₱5,000,000.00 for moral damages is excessive under the
circumstances, and the amount awarded by the trial court of
₱500,000.00 in moral damages more seemly.1avvphi1
Likewise, we deem exemplary damages available under the
circumstances, and the amount of ₱300,000.00 appropriate. There is
similarly no cause though to disturb the determined award of
₱100,000.00 as attorney’s fees, and ₱85,233.01 as expenses of
litigation.
WHEREFORE, the petition is GRANTED. The assailed Decision of
the Court of Appeals is REVERSED and SET ASIDE. The Decision of
the Regional Trial Court of Makati, Branch 145 in Civil Case No. 92-
1665 is hereby REINSTATED. Costs against respondent.
SO ORDERED.
FACTS:
After the Amsterdam incident that happened involving the delay of
American Express Card to approve his credit card purchases worth
US$13,826.00 at the Coster store, Pantaleon commenced a complaint
for moral and exemplary damages before the RTC against American
Express. He said that he and his family experienced inconvenience
and humiliation due to the delays in credit authorization. RTC
rendered a decision in favor of Pantaleon. CA reversed the award of
damages in favor of Pantaleon, holding that AmEx had not breached
its obligations to Pantaleon, as the purchase at Coster deviated from
Pantaleon's established charge purchase pattern.
ISSUE:
1. Whether or not AmEx had committed a breach of its obligations to
Pantaleon.
2. Whether or not AmEx is liable for damages.
RULING:
1. Yes. The popular notion that credit card purchases are approved
“within seconds,” there really is no strict, legally determinative point
of demarcation on how long must it take for a credit card company
to approve or disapprove a customer’s purchase, much less one
specifically contracted upon by the parties. One hour appears to be
patently unreasonable length of time to approve or disapprove a
credit card purchase.
38
Loans in General – Articles 1933-1934, Art 1305; 1318
G.R. No. 194515
SPOUSES OSCAR AND GINA GIRO NELLA, Petitioners,
vs.
PHILIPPINE NATIONAL BANK, Respondent.
DECISION
PEREZ, J.:
We have here a Petition for Review on Certiorari under Rule 45 of.
the Rules of Court assailing the Decision1 dated 27 August 2010 of
the Court of Appeals (CA) in CA-G.R. CV No. 83870 which reversed
and set aside the Decision2of the Regional Trial Court (RTC), Branch
44, Dagupan City in Civil Case No. 2000-0099-D. The RTC granted
the complaint of petitioners, the Spouses Oscar and Gina Gironella
(Spouses Gironella), against respondent Philippine National Bank
(PNB) for: (1) the proper construction of eyents between the parties
relative to the proposed Restructuring Agreement; (2) fraud, gross
negligence, and/or at the very least, abuse of right under Article 19,
20 and 21 of the Civil Code; and (3) corollary thereto, payment of
actual and compensatory damages, moral, attorney’s fees and
litigation expenses.
First, the bare and undisputed facts.
In separate Credit Agreements respectively dated 11 November 1991
and 16 January 1992, the Spouses Gironella obtained two (2) loans
from PNB in the amounts of Php7,500,000.00 and Php2,000,000.00 for
the construction of the Dagupan Village Hotel and Sports Complex.
The loans were co-terminus, both payable on installments and
secured by the same real estate mortgage over a parcel of land
covered by Transfer Certificate of Title (TCT) No. 56059 in favor of
the creditor, PNB.
In May 1992, seeking to expand their hotel operations, the Spouses
Gironella again applied for another loan with PNB in the amount of.
Php5,800,000.00 for the construction of a restaurant bar and the
purchase of a generator set.
From these front events, the dealings between the parties turned into
the present case.
The Spouses Gironella began to default in paying their prior two (2)
loans. They would aver, in their complaint until this petition, that
their default in payment is attributable to PNB whose
representatives and officers made them believe that their
Php5,800,000.00 loan application would be approved and directed
them to proceed with their expansion plans. To that end and with
the full knowledge of the PNB's officers and representatives, the
Spouses Gironella used the income generated by the hotel for the
construction of the restaurant bar and purchase of the generator set
while the Php5,800,000.00 loan was pending and still being
processed. In their Complaint, the Spouses Gironella alleged:
[PNB's] officers and representatives gave their assurance to the
[Spouses Gironella] that the said loan will be approved by [PNB] and
even directed the [Spouses Gironella] to make use of the· funds
being generated by Dagupan Village Hotel for the said purposes,
which the [Spouses Gironella] did, but seriously affected the
servicing of their first loan. [The Spouses Gironella] then proposed a
restructuring of their first loan and after a series of meetings, offers
and counter offers, the [Spouses Gironella] accepted the offer of
[PNB] to their proposed program (sic) to restructure the loan which
for all intents and purposes was already perfected.3
From the period of February 1993 to 2 October 1995, the Spouses
Gironella paid a total of Php4,219,000.00 on their first two loans of
Php9,500,000.00. In January and April 1998, the Spouses Gironella
likewise paid PNB Phpl,000,000.00 and Phpl,650,000.00. They
maintain that all these payments were made to effect the
restructuring of their loans with PNB.
39
Loans in General – Articles 1933-1934, Art 1305; 1318
Meanwhile, in separate instances, on 29 May 1996 and 1 7 April 1998,
while the parties were negotiating and discussing the restructuring
of the Spouses Gironella's loans, PNB made a couple of attempts to
foreclose the mortgaged property. It filed a Petition for the Extra-
Judicial Foreclosure thereof and subsequently, a Notice of Extra-
Judicial Foreclosure Sale. However, the final foreclosure of the
mortgaged property was stalled because of the continuing
negotiations between the parties for the restructuring of the loans.
By the year 2000, negotiations for the restructuring of the Spouses
Gironella's loans was still ongoing and remained indefinite. On 25
January 2000, after several exchange of correspondence, PNB wrote
the Spouses . Gironella and proposed, thus:
May we now have your written final conformity with the proposed
restructuring of your account by way of:
Capitalization of the P9,485,620.00, part of the accrued interest as of
December 14, 1999 for consolidation with the outstanding
P9,500,000.00 unpaid principal to aggregate Pl4,380,000.00;
Restructuring of this P14,380,000.00 into a fullysecured 10 year term
loan payable quarterly under thefollowing scheme;
 grace period on the payment of the principal only
for Eight (8) quarters.
 amortization for the 1st to gth quarters be based on
accrued interest due.
 amortization from the 9th up to the 39th quarter to
be based on a 15-year payment scheme with balloon
payment on the 40th quarter.
Restructuring of P8,120,000.00, the other part of the accrued interest
as of December 14, 2000, on clean basis to be payable quarterly for
five (5) years with amortization from 1st to 19th quarters based on a
15-year payment scheme and balloon payment on the 20th quarter.
Interest, net of capitalization, to be paid from December 14, 1999 up
to date of implementation,
This proposed restructuring is still subject for evaluation and
approval of higher management and therefore tentative in nature. 4
(Emphasis Supplied)
In a letter dated 7 February 2000, the Spouses Gironella gave a
qualified acceptance of PNB's proposed restructuring, specifically
referring · to specific terms in the 25 January 2000 proposal of PNB.
However, in its 8 March 2000 letter, PNB rejected finally the counter
offer of the Spouses Gironella for the restructuring of their loan.
On 25 July 2000, PNB re-filed its Petition for Extra-Judicial
Foreclosure of the mortgaged property.
Forthwith, the Spouses Gironella filed the Complaint before the RTC
with prayer for issuance of a Temporary Restraining Order (TRO)
and preliminary injunction to enjoin enforcement of the original
credit agreements, and security therefor, between the parties.
Effectively, the Spouses Gironella sought to enjoin the 'foreclosure of
the mortgaged property .
On 4 and 28 September 2000, the RTC issued the prayed for TRO and
Writ of Preliminary injunction.
Subsequently, the RTC granted the Complaint of the Spouses
Gironella ruling that there was a perfected and binding restructured
credit agreement, the terms contained in the 25 January 2000 and 7
February 2000 written exchanges of the parties:
WHEREFORE, judgment is rendered in favor of [petitioners] Oscar
Gironella and Gina F. Gironella and against [respondent] Philippine
National Bank, as follows:
40
Loans in General – Articles 1933-1934, Art 1305; 1318
1. On the first and third causes of action, judgment is
rendered ordering [PNB] to pay [the Spouses
Gironella], the following:
a) P5,000,000.00 and PI00,000.00 a month as
actual and compensatory damages;
b) P2,000,000.00 as moral damages;
c) PS00,000.00 as and for Attorney's fees,
plus Pl0,000.00 for every conference or
hearing as Appearance Fees; and
d) P250,000.00 as litigation expenses.
2. On the second cause of action, the [ c ]ourt
declares the restructuring of the subject loan
pursuant to the letter of [PNB] dated January 25i
2000, Exhibit U for [the Spouses Gironella], and
Exhibit 2 for [PNB], and [the Spouses Gironella's]
letter dated February 7, 2000, Exhibit V for the
[Spouses Gironella],. and Exhibit 3 for [PNB], as
perfected and binding upon the parties.
[PNB] is ordered to pay the costs of suit.5
On Motion for Partial Reconsideration and/or Clarification filed by
the Spouses Gironella, the RTC clarified that the payment of
Phpl00,000.00 a month as actual and compensatory damages is
reckoned from the filing of the Amended Complaint on 25
September 2002. In addition, the R TC declared permanent the writ
of preliminary injunction it had previously issued, effectively
enjoining the enforcement of the original credit agreements and the
accessory contract, the real estate mortgage over the land covered by
TCT No. 56059.
Posthaste, PNB appealed to the CA questioning the trial court's
ruling. PNB argued that the exchange of correspondence between
the parties, specifically the 25 January 2000 and 7 February 2000
letters, did not constitute a perfected and binding restructuring
agreement since there was no express acceptance by either party of
the other's counter-offer. PNB averred that it, in fact, finally rejected
the restructuring proposal of the Spouses Gironella on 8 March 2000.
The appellate court granted the appeal of PNB and reversed the
ruling of the trial court. The CA ruled that the Spouses Gironella,
apart from their bare allegations, failed to present evidence required
in civil cases, i.e. by a preponderance of evidence, to establish their
claim that PNB fraudulently and in gross negligence and/or, in
abuse of right, gave them false hopes and assurances that their third
loan would be approved in violation of Articles 19, 20 and 21 of the
Civil Code thereby entitling them to damages. The appellate court
ruled, thus:
In civil cases, he who alleges a fact has the burden of proving it by a
preponderance of evidence. Aside from the surmises of [the Spouses
Gironella] that they were given false hope and assurances by [PNB's]
officers, the [Spouses Gironella] in this case failed to show proof
preponderant enough to sway this [ c ]ourt in their favor.
As compared to the other transactions and negotiation entered into
between the parties herein which were very much documented, the
[Spouses Gironella] failed to present any documentary evidence
relevant to their claims of fraud, gross negligence, and abuse of right
against the (PNB 's] officers. The records of the instant case are
wanting of any proof that would substantiate the [Spouses Gironella'
s] claim that they were assured by [PNB' s] officers that the
additional loan application will be approved and that it was agreed
upon that the income of the hotel will be used for the construction of
the disco-restaurant and the purchase of the generator set for the
meantime.
41
Loans in General – Articles 1933-1934, Art 1305; 1318
It must also be noted that [the Spouses Gironella] contracted two
previous loans from [PNB] even before the additional loan subject of
this case was applied for.1âwphi1 Thus, not being their first time to
enter into a loan with a bank, the [Spouses Gironella] are already
very much aware of the process being observed in obtaining a loan
from such kind of institution. Gina Gironella even wrote in her 7
August 1992 letter to Mr. Alfredo S. Besa, Manager of the PNB
Dagupan Branch, that:
Dear Mr. Besa:
I was very much elated over the information relayed to me by my
father, thru our Resident Manager, William Crossly, regarding the
profound concern and interest shown by your Vice-President for
Northern Luzon Branches Pedrito D. Torres towards the Dagupan
Village Hotel and Sports Center. I understand that VP Torres was
also convinced that the construction of the additional function hall
and night club would, indeed, upgrade the revenueearning capacity
of the hotel, thus reportedly giving his assent for the immediate
commencement of the project.
In this connection, therefore, may I reiterate our appeal manifested
in our previous letters for the approval of our additional loan
application with which to underwrite the above project which was
started almost two months ago, and the purchase of a 125 ...
generating set.
In the above letter, [petitioner] Gina Gironella appears to be mindful
that a formal approval is necessary for their application to be
considered as finally approved. Thus, when the [Spouses Gironella]
undertook to initiate the construction of the disco-restaurant and the
purchase of the generator set even without the formal approval of
their additional loan, the [Spouses Gironella] did it at their own risk. 6
On the finding of the trial court that the correspondence between the
parties embodied in the 25 January 2000 and 7 February 2000 letters
of PNB and the Spouses Gironella, respectively, constituted the
restructuring agreement, the appellate court found that there was no
final agreement reached by the parties where the offer was certain
and acceptance thereof by the other party was absolute. The
appellate court held that, in this case, a qualified acceptance equated
to a counter-offer and, at that point, there was no absolute and
unqualified acceptance which is identical in all respects with that of
the offer so as to produce consent or meeting of the minds.
Hence, this appeal by certiorari of the Spouses Gironella insisting on
the correctness of the trial court's ruling.
We deny the petition and affirm the appellate court's ruling.
The Spouses Gironella claim fraud, gross negligence and/or, at the
very least, abuse of right in violation of Articles 19, 20 and 21 of the
Civil Code when PNB, essentially, twice did not approve their loan
applications:
(1) the additional loan of Php5,800,000.00 for their businesses'
expansion plans, and (2) restructuring of their original credit
agreements, despite purported assurances and representations of
approval by PNB 's officers and representatives.· The Spouses
Gironella maintain that these actuations of PNB through its officers
and representatives constituted fraud, gross negligence and/or
abuse of right in its dealings thus entitling the Spouses Gironella to
damages, actual and compensatory, moral, attorney's fees and
litigation expenses.
Incredibly, the RTC adopted in full the stance and allegations of the
Spouses Gironella, without a shred of evidence or reference thereto
in the ratiocination of its ruling:
It should be noted that [PNB's] act of continuously giving positive
assurances to the [Spouses Gironella] and giving them false hopes
that the additional loan will be approved and eventually informing
them later that the same was disapproved by the higher
42
Loans in General – Articles 1933-1934, Art 1305; 1318
management is a clear indication of fraud and gross negligence. If it
were not for [PNB 's] continuous assurances that the loan will be
approved, the [Spouses Gironella] would not have participated in
the negotiations with PNB officers and representatives, thus
dispensing with the preparation and submission of various
documents, financial reports and other demands. The [ c ]ourt agrees
with the stand of the [Spouses Gironella] that if it were for [PNB's]
directive to direct the use of the funds generated by the hotel to
construct [the] disco-restaurant purchase of the generator set (sic),
the servicing and/or payment of the original loan should. not have
been affected. The records would show that [PNB] misled the
[Spouses Gironella] into believing that the additional loan of 5.8
Million Pesos would be approved. It should be stated in this
connection that the payments for the first loan Php9,500,000.00
would have come from the funds generated by the hotel. There is no
doubt that the [Spouses Gironella] applied for an additional loan of
P5,800,000.00 for the purpose of constructing the disco-restaurant
and purchase of generator set. The hotel fund was used for the
above-cited purpose and that was the reason instead of using the
same to pay [the Spouses Gironella's] obligation relative to the
Php9,500,000.00 loan. [The Spouses Gironella's] acted in good faith
when they used the money to construct the disco-restaurant and
purchase the generator set because of the false assurances of [PNB]
that the amount of Php5,800,000.00 loan would be approved. 7
The appellate court correctly did not give imprimatur to the
foregoing ruling of the trial court given that nowhere therein does
the trial court refer to evidence to support its conclusions.
First. As plaintiffs, the Spouses Gironella had the duty, the burden of
proof, to present evidence, required by law, on the facts in issue
necessary to establish their claim.8 The trial court did not even name
the bank officers and representatives who gave "false hopes and
assurances" to the Spouses Gironella. The trial court could have
easily specified the representations and statements of the bank
officers and representatives which the Spouses Gironella heavily
relied upon. The Spouses Gironella's lack of evidence is further
highlighted by the trial court's non-sequitur statement that "[i]f it
were not for [PNB' s] continuous assurances that the loan will be
approved, the [Spouses Gironella] would not have participated in
the negotiations with PNB officers and representatives, thus
dispensing with the preparation and submission of various
documents, financial reports and other demands."9
Second. The foregoing statement fails to take into consideration the
three (3) distinct stages of a contract: (1) preparation or negotiation,
(2) perfection, and finally, (3) consummation. 10 At th'1;t point where
the Spouses Gironella were applying for the additional loan of
Php5,800,000.00, that involved the negotiation stage for a contract
separate from the first two credit agreements which were
consolidated into one, secured by the same real estate mortgage over
TCT No. 56059, both payable on installment and with the same term.
Necessarily, the Spouses Gironella as debtors applying for an.
additional loan, ought to participate in the negotiations thereof and
await PNB' s assessment and processing of their additional loan
application.
Discussion on the succeeding stages of a contract shall be
done anon in relation to the alleged restructuring agreement.
Third. We find difficulty in accepting the Spouses Gironella's
insistence that PNB' s officers and representatives repeatedly assured
them that their additional loan will be approved, apparently,
without qualification.
In approving loans, credit accommodations and guarantees, PNB, as
a bank, must still comply with banking laws and conduct business in
a safe and sound manner. Ultimately, PNB to comply with the
General Banking Act11 as amended, the old statute and precursor to
the present General Banking Law;12 must assess compliance by the
Spouses Gironella with specific legal banking requirements such as
the Single Borrower's Limit.13 Clearly, approval of the Spouses
Gironella's additional loan is not contingent solely on the purported
representations of PNB's officers as claimed by the former.
43
Loans in General – Articles 1933-1934, Art 1305; 1318
Fourth. From these very same bare allegations of the Spouses
Gironella, the trial court, in upholding their stance, considered the
assurances given by PNB's officers that the additional loan will be
approved as the evidence itself of PNB' s supposed commission of
fraud. In short, the Spouses Gironella proffer as evidence of fraud
their own bare allegations· which regrettably, the trial court echoed.
We cannot overemphasize that the burden of proof is upon the party
who alleges bad faith or fraud.14 In this case, the· Spouses Gironella's
bare allegations that PNB' s officers assured them that their
additional loan will be approved are mere abstractions of fraud
without specifics pointing to the actual commission of fraud.
We thus agree with the disquisition of the appellate court thereon:
In civil cases, he who alleges a fact has the burden of proving it by a
preponderance of evidence. Aside from the surmises of [the Spouses
Gironella] that they were given false hopes and assurances by
[PNB's] officers, the [Spouses Gironella] in this. case failed to show
proof preponderant enough to sway this [ c ]ourt in their favor.
As compared to the other transactions and negotiations entered into
between the parties herein which were very much documented, the
[Spouses Gironella] failed to present any documentary evidence
relevant to their claims of fraud, gross negligence, and abuse of right
against the [PNB' s] officers. The records of the instant case are
wanting of any proof that would substantiate the [Spouses
Gironella's] claim that they were assured by [PNB's] officers that the
additional loan application will be approved and that it was agreed
upon that the income of the hotel will be used for the construction of
the disco-restaurant and the purchase of the15 generator set for the
meantime.
The Spouses Gironella next contend that the parties already had a
partially executed, if not perfected and binding, restructuring
agreement. embodied in their 7 February 2000 letter of acceptance of
the offer and proposal contained in PNB's 25 January 2000 letter. As
with their first contention on the "false hopes and assurances"
purportedly given by PNB's officers and representatives to the
Spouses Gironella, the trial court upheld them and found that there
was a perfected and binding restructuring agreement between the
parties. Moreover, the Spouses Gironella assert that since they have
made substantial payments in pursuance of the restructuring
agreement, or at the least under a promise of restructuring the loan,
there is effectively a partially executed restructuring agreement.
We cannot subscribe to the contention of the Spouses Gironella,
albeit upheld by the trial court.
A contract is perfected by mere consent.16 In turn, consent is
manifested by the meeting of the offer and the acceptance upon the
thing and the cause which are to constitute the contract.17 The offer
must be certain and the acceptance seasonable and absolute. 18 If
qualified, the acceptance would merely constitute a counter-offer19 as
what occurred in this case.
To reach that moment of perfection, the parties must agree on the
same thing in the same sense, so that their minds meet as to all the
terms.20 They must have a distinct intention common to both and
without doubt or difference; until all understand alike, there can be
no assent, and therefore no contract. The minds of parties must meet
at every point; nothing can be left open for further arrangement. So
long as there is any uncertainty or indefiniteness, or future
negotiations or considerations to be had between the parties, there is
not a completed contract, and in fact, there is no contract at all. 21
The Spouses Gironella's payments under its original loan account
cannot be considered as partial execution of the proposed
restructuring loan agreement. They were clearly made during the
pendency of the negotiations on the restructuring. Such pendency
proves, absence, not presence of an agreement ready for execution.
At the time of payments only petitioners' obligation under the
original credit agreements were in existence. Indeed, the payment
44
Loans in General – Articles 1933-1934, Art 1305; 1318
scheme under the proposed restructuring was outlined by PNB only
in the letter of 25 January 2000.
Further on this, negotiation begins from the time the prospective
contracting parties manifest their interest in the contract and ends at
the moment of agreement of the parties. Once there is concurrence of
the offer and acceptance of the object and cause, the stage of
negotiation is finished.22 This situation does not obtain in the case at
bar. The letter dated 25 January . 2000 of PNB was qualifiedly
accepted by the Spouses Gironella as contained in their 7 February
2000 letter and constituted a counter-offer which PNB ultimately
rejected in its 8 March 2000 letter. The surrounding circumstances
clearly show that the parties were not past the stage of negotiation
for the terms and conditions of the restructured loan agreements.
There was no meeting of the minds on the restructuring of the loans.
Thus, the Spouses Gironella's original Php9,500,000.00 loan
agreement subsists.
In all, we affirm the appellate court's ruling, PNB is not liable either
for fraud, gross negligence or abuse of right. It did not breach any
agreement there having been no restructured loan agreement at all
that was perfected.
Consequently, the PNB is not liable to pay the Spouses Gironella any
form of damages.
WHEREFORE, the petition is DENIED. The Decision of the Court of
Appeals dated 27 August 2010 in CA-G.R. CV No. 83870 is
AFFIRMED. The Decision and Order dated 23 June 2004 and 28
September 2004 of the Regional Trial Court, Branch 44, Dagupan
City are REVERSED and SET ASIDE. The Amended Complaint of
the petitioners, Oscar and Gina Gironella, is DISMISSED.
SO ORDERED.
FACTS:
On November 11, 1991 and January 16, 1992, the Spouses Oscar and
Gina Gironella obtained two co-terminus loans amounting to
7,500,000 php and 2,000,000 php from Philippine National Bank
(PNB) for the construction of the Dagupan Village Hotel and Sports
Complex. Both loans were payable on installment and secured by
the same real estate mortgage over a parcel of land covered by TCT
No. 56059 in favor of PNB.
In May 1992, the Spouses Gironella applied for another loan
amounting to 5,800,000 php for the construction of a disco-restaurant
and bar and the purchase of a generator set.
From the period of February 1993 to October 2, 1995, the Spouses
Gironella paid 4,219,000 php in total for their first two loans.
The Spouses Gironella defaulted in paying the prior two loans. The
Spouses alleged that: (1) they were made to believe by PNB that their
third loan would be approved, (2) they were directed to proceed
with their expansion plans and (3) there would be a loan
restructuring. Thus, they the income generated by the hotel while
the third was pending.
In January and April 1998, the Spouses Gironella paid a total of
2,650,000 php allegedly to effect the restructuring of their
loans. Despite restructuring negotiations, PNB filed a petition to
foreclose the mortgaged property on May 29, 1996 and April 17, 1998
and a Notice of Extra-judicial Foreclosure Sale. The final foreclosure
was subsequently stalled but was refiled on July 25, 2000 after failure
to agree on the restructuring.
Spouses Gironella filed a complaint before the RTC with prayer for
issuance of a Temporary Restraining Order (TRO) and preliminary
injunction to enjoin the enforcement of the original credit agreements
and the foreclosure of the mortgaged property. The RTC issued the
TRO and Writ of Preliminary injunction and subsequently, grant the
complaint by ruling that there was a binding credit restructuring
agreement. On Motion for Partial Reconsideration, RTC clarified
45
Loans in General – Articles 1933-1934, Art 1305; 1318

that actual and compensatory damages to reckon from the date of
the filing of the amended complaint and declared permanent the
writ of preliminary injunction.
PNB filed a petition an appeal to the CA arguing that the letters sent
on January 2000 and February 7, 2000 were not perfected since there
was only a qualified acceptance equivalent to a counter-offer. CA
favored PNB. The bare allegations of abuse of right by PNB on
giving the Spouses Gironella false hope was insufficient to grant
them damages.
Spouses Gironella filed a petition for review under Rule 45 of the
Rules of Court.
ISSUE: W/N CA is correct that there is no acceptance to perfect the
credit restructuring agreement.
HELD: YES. No restructured loan agreement at all that was
perfected. Petition is Denied.
To reach that moment of perfection, the parties must agree on the
same thing in the same sense, so that their minds meet as to all the
terms. They must have a distinct intention common to both and
without doubt or difference; until all understand alike, there can be
no assent, and therefore no contract. The minds of parties must meet
at every point; nothing can be left open for further arrangement. So
long as there is any uncertainty or indefiniteness, or future
negotiations or considerations to be had between the parties, there is
not a completed contract, and in fact, there is no contract at all.
The Spouses Gironella's payments under its original loan account
cannot be considered as partial execution of the proposed
restructuring loan agreement. Negotiation begins from the time the
prospective contracting parties manifest their interest in the contract
and ends at the moment of agreement of the parties.
Once there is concurrence of the offer and acceptance of the object
and cause, the stage of negotiation is finished. Since there was a
counter-offer, the parties were not past the stage of negotiation.

There are 3 distinct stages of a contract: (1) preparation or

negotiation (2) perfection and (3) consummation. The credit
restructuring loan was in the negotiation stage. The application for
additional loan separate from the first two credit loans was also in
the negotiation stage.

The approval of the additional loan is not contingent on the

representation of the PNB officers as PNB must comply with the
General Banking Law to assess based on specific legal banking
requirements. Thus, it cannot be approved without qualification.

A contract is perfected by mere consent. In turn, consent is

manifested by the meeting of the offer and the acceptance upon the
thing and the cause which are to constitute the contract. The offer
must be certain and the acceptance seasonable and absolute. If
qualified, the acceptance would merely constitute a counter-offer as
what occurred in this case.

46
Loans in General – Articles 1933-1934, Art 1305; 1318
G.R. No. 133632 February 15, 2002
BPI INVESTMENT CORPORATION, petitioner,
vs.
HON. COURT OF APPEALS and ALS MANAGEMENT &
DEVELOPMENT CORPORATION, respondents.
DECISION
QUISUMBING, J.:
This petition for certiorari assails the decision dated February 28,
1997, of the Court of Appeals and its resolution dated April 21, 1998,
in CA-G.R. CV No. 38887. The appellate court affirmed the judgment
of the Regional Trial Court of Pasig City, Branch 151, in (a) Civil
Case No. 11831, for foreclosure of mortgage by petitioner BPI
Investment Corporation (BPIIC for brevity) against private
respondents ALS Management and Development Corporation and
Antonio K. Litonjua,1 consolidated with (b) Civil Case No. 52093, for
damages with prayer for the issuance of a writ of preliminary
injunction by the private respondents against said petitioner.
The trial court had held that private respondents were not in default
in the payment of their monthly amortization, hence, the
extrajudicial foreclosure conducted by BPIIC was premature and
made in bad faith. It awarded private respondents the amount of
₱300,000 for moral damages, ₱50,000 for exemplary damages, and
₱50,000 for attorney’s fees and expenses for litigation. It likewise
dismissed the foreclosure suit for being premature.
The facts are as follows:
Frank Roa obtained a loan at an interest rate of 16 1/4% per annum
from Ayala Investment and Development Corporation (AIDC), the
predecessor of petitioner BPIIC, for the construction of a house on
his lot in New Alabang Village, Muntinlupa. Said house and lot were
mortgaged to AIDC to secure the loan. Sometime in 1980, Roa sold
the house and lot to private respondents ALS and Antonio Litonjua
for ₱850,000. They paid ₱350,000 in cash and assumed the ₱500,000
balance of Roa’s indebtedness with AIDC. The latter, however, was
not willing to extend the old interest rate to private respondents and
proposed to grant them a new loan of ₱500,000 to be applied to Roa’s
debt and secured by the same property, at an interest rate of 20% per
annum and service fee of 1% per annum on the outstanding
principal balance payable within ten years in equal monthly
amortization of ₱9,996.58 and penalty interest at the rate of 21% per
annum per day from the date the amortization became due and
payable.
Consequently, in March 1981, private respondents executed a
mortgage deed containing the above stipulations with the provision
that payment of the monthly amortization shall commence on May 1,
1981.
On August 13, 1982, ALS and Litonjua updated Roa’s arrearages by
paying BPIIC the sum of ₱190,601.35. This reduced Roa’s principal
balance to ₱457,204.90 which, in turn, was liquidated when BPIIC
applied thereto the proceeds of private respondents’ loan of
₱500,000.
On September 13, 1982, BPIIC released to private respondents
₱7,146.87, purporting to be what was left of their loan after full
payment of Roa’s loan.
In June 1984, BPIIC instituted foreclosure proceedings against
private respondents on the ground that they failed to pay the
mortgage indebtedness which from May 1, 1981 to June 30, 1984,
amounted to Four Hundred Seventy Five Thousand Five Hundred
Eighty Five and 31/100 Pesos (₱475,585.31). A notice of sheriff’s sale
was published on August 13, 1984.
On February 28, 1985, ALS and Litonjua filed Civil Case No. 52093
against BPIIC. They alleged, among others, that they were not in
47
Loans in General – Articles 1933-1934, Art 1305; 1318
arrears in their payment, but in fact made an overpayment as of June
30, 1984. They maintained that they should not be made to pay
amortization before the actual release of the ₱500,000 loan in August
and September 1982. Further, out of the ₱500,000 loan, only the total
amount of ₱464,351.77 was released to private respondents. Hence,
applying the effects of legal compensation, the balance of ₱35,648.23
should be applied to the initial monthly amortization for the loan.
On August 31, 1988, the trial court rendered its judgment in Civil
Case Nos. 11831 and 52093, thus:
WHEREFORE, judgment is hereby rendered in favor of ALS
Management and Development Corporation and Antonio K.
Litonjua and against BPI Investment Corporation, holding that the
amount of loan granted by BPI to ALS and Litonjua was only in the
principal sum of P464,351.77, with interest at 20% plus service charge
of 1% per annum, payable on equal monthly and successive
amortizations at P9,283.83 for ten (10) years or one hundred twenty
(120) months. The amortization schedule attached as Annex "A" to
the "Deed of Mortgage" is correspondingly reformed as aforestated.
The Court further finds that ALS and Litonjua suffered compensable
damages when BPI caused their publication in a newspaper of
general circulation as defaulting debtors, and therefore orders BPI to
pay ALS and Litonjua the following sums:
a) P300,000.00 for and as moral damages;
b) P50,000.00 as and for exemplary damages;
c) P50,000.00 as and for attorney’s fees and expenses of
litigation.
The foreclosure suit (Civil Case No. 11831) is hereby DISMISSED for
being premature.
Costs against BPI.
SO ORDERED.2
Both parties appealed to the Court of Appeals. However, private
respondents’ appeal was dismissed for non-payment of docket fees.
On February 28, 1997, the Court of Appeals promulgated its
decision, the dispositive portion reads:
WHEREFORE, finding no error in the appealed decision the same is
hereby AFFIRMED in toto.
SO ORDERED.3
In its decision, the Court of Appeals reasoned that a simple loan is
perfected only upon the delivery of the object of the contract. The
contract of loan between BPIIC and ALS & Litonjua was perfected
only on September 13, 1982, the date when BPIIC released the
purported balance of the ₱500,000 loan after deducting therefrom the
value of Roa’s indebtedness. Thus, payment of the monthly
amortization should commence only a month after the said date, as
can be inferred from the stipulations in the contract. This, despite the
express agreement of the parties that payment shall commence on
May 1, 1981. From October 1982 to June 1984, the total amortization
due was only ₱194,960.43. Evidence showed that private
respondents had an overpayment, because as of June 1984, they
already paid a total amount of ₱201,791.96. Therefore, there was no
basis for BPIIC to extrajudicially foreclose the mortgage and cause
the publication in newspapers concerning private respondents’
delinquency in the payment of their loan. This fact constituted
sufficient ground for moral damages in favor of private respondents.
The motion for reconsideration filed by petitioner BPIIC was
likewise denied, hence this petition, where BPIIC submits for
resolution the following issues:
48
Loans in General – Articles 1933-1934, Art 1305; 1318
I. WHETHER OR NOT A CONTRACT OF LOAN IS A
CONSENSUAL CONTRACT IN THE LIGHT OF THE RULE
LAID DOWN IN BONNEVIE VS. COURT OF APPEALS, 125
SCRA 122.
II. WHETHER OR NOT BPI SHOULD BE HELD LIABLE
FOR MORAL AND EXEMPLARY DAMAGES AND
ATTORNEY’S FEES IN THE FACE OF IRREGULAR
PAYMENTS MADE BY ALS AND OPPOSED TO THE
RULE LAID DOWN IN SOCIAL SECURITY SYSTEM VS.
COURT OF APPEALS, 120 SCRA 707.
On the first issue, petitioner contends that the Court of Appeals
erred in ruling that because a simple loan is perfected upon the
delivery of the object of the contract, the loan contract in this case
was perfected only on September 13, 1982. Petitioner claims that a
contract of loan is a consensual contract, and a loan contract is
perfected at the time the contract of mortgage is executed
conformably with our ruling in Bonnevie v. Court of Appeals, 125
SCRA 122. In the present case, the loan contract was perfected on
March 31, 1981, the date when the mortgage deed was executed,
hence, the amortization and interests on the loan should be
computed from said date.
Petitioner also argues that while the documents showed that the loan
was released only on August 1982, the loan was actually released on
March 31, 1981, when BPIIC issued a cancellation of mortgage of
Frank Roa’s loan. This finds support in the registration on March 31,
1981 of the Deed of Absolute Sale executed by Roa in favor of ALS,
transferring the title of the property to ALS, and ALS executing the
Mortgage Deed in favor of BPIIC. Moreover, petitioner claims, the
delay in the release of the loan should be attributed to private
respondents. As BPIIC only agreed to extend a ₱500,000 loan, private
respondents were required to reduce Frank Roa’s loan below said
amount. According to petitioner, private respondents were only able
to do so in August 1982.
In their comment, private respondents assert that based on Article
1934 of the Civil Code,4 a simple loan is perfected upon the delivery
of the object of the contract, hence a real contract. In this case, even
though the loan contract was signed on March 31, 1981, it was
perfected only on September 13, 1982, when the full loan was
released to private respondents. They submit that petitioner
misread Bonnevie. To give meaning to Article 1934, according to
private respondents, Bonnevie must be construed to mean that the
contract to extend the loan was perfected on March 31, 1981 but the
contract of loan itself was only perfected upon the delivery of the full
loan to private respondents on September 13, 1982.
Private respondents further maintain that even
granting, arguendo, that the loan contract was perfected on March 31,
1981, and their payment did not start a month thereafter, still no
default took place. According to private respondents, a perfected
loan agreement imposes reciprocal obligations, where the obligation
or promise of each party is the consideration of the other party. In
this case, the consideration for BPIIC in entering into the loan
contract is the promise of private respondents to pay the monthly
amortization. For the latter, it is the promise of BPIIC to deliver the
money. In reciprocal obligations, neither party incurs in delay if the
other does not comply or is not ready to comply in a proper manner
with what is incumbent upon him. Therefore, private respondents
conclude, they did not incur in delay when they did not commence
paying the monthly amortization on May 1, 1981, as it was only on
September 13, 1982 when petitioner fully complied with its
obligation under the loan contract.
We agree with private respondents. A loan contract is not a
consensual contract but a real contract. It is perfected only upon the
delivery of the object of the contract.5 Petitioner misapplied Bonnevie.
The contract in Bonnevie declared by this Court as a perfected
consensual contract falls under the first clause of Article 1934, Civil
Code. It is an accepted promise to deliver something by way of
simple loan.
49
Loans in General – Articles 1933-1934, Art 1305; 1318
In Saura Import and Export Co. Inc. vs. Development Bank of the
Philippines, 44 SCRA 445, petitioner applied for a loan of ₱500,000
with respondent bank. The latter approved the application through a
board resolution. Thereafter, the corresponding mortgage was
executed and registered. However, because of acts attributable to
petitioner, the loan was not released. Later, petitioner instituted an
action for damages. We recognized in this case, a perfected
consensual contract which under normal circumstances could have
made the bank liable for not releasing the loan. However, since the
fault was attributable to petitioner therein, the court did not award it
damages.
A perfected consensual contract, as shown above, can give rise to an
action for damages. However, said contract does not constitute the
real contract of loan which requires the delivery of the object of the
contract for its perfection and which gives rise to obligations only on
the part of the borrower.6
In the present case, the loan contract between BPI, on the one hand,
and ALS and Litonjua, on the other, was perfected only on
September 13, 1982, the date of the second release of the loan.
Following the intentions of the parties on the commencement of the
monthly amortization, as found by the Court of Appeals, private
respondents’ obligation to pay commenced only on October 13, 1982,
a month after the perfection of the contract.7
We also agree with private respondents that a contract of loan
involves a reciprocal obligation, wherein the obligation or promise of
each party is the consideration for that of the other. 8 As averred by
private respondents, the promise of BPIIC to extend and deliver the
loan is upon the consideration that ALS and Litonjua shall pay the
monthly amortization commencing on May 1, 1981, one month after
the supposed release of the loan. It is a basic principle in reciprocal
obligations that neither party incurs in delay, if the other does not
comply or is not ready to comply in a proper manner with what is
incumbent upon him.9 Only when a party has performed his part of
the contract can he demand that the other party also fulfills his own
obligation and if the latter fails, default sets in. Consequently,
petitioner could only demand for the payment of the monthly
amortization after September 13, 1982 for it was only then when it
complied with its obligation under the loan contract. Therefore, in
computing the amount due as of the date when BPIIC extrajudicially
caused the foreclosure of the mortgage, the starting date is October
13, 1982 and not May 1, 1981.
Other points raised by petitioner in connection with the first issue,
such as the date of actual release of the loan and whether private
respondents were the cause of the delay in the release of the loan, are
factual. Since petitioner has not shown that the instant case is one of
the exceptions to the basic rule that only questions of law can be
raised in a petition for review under Rule 45 of the Rules of
Court,10 factual matters need not tarry us now. On these points we
are bound by the findings of the appellate and trial courts.
On the second issue, petitioner claims that it should not be held liable
for moral and exemplary damages for it did not act maliciously
when it initiated the foreclosure proceedings. It merely exercised its
right under the mortgage contract because private respondents were
irregular in their monthly amortization.1âwphi1 It invoked our ruling
in Social Security System vs. Court of Appeals, 120 SCRA 707, where we
said:
Nor can the SSS be held liable for moral and temperate damages. As
concluded by the Court of Appeals "the negligence of the appellant
is not so gross as to warrant moral and temperate damages," except
that, said Court reduced those damages by only P5,000.00 instead of
eliminating them. Neither can we agree with the findings of both the
Trial Court and respondent Court that the SSS had acted maliciously
or in bad faith. The SSS was of the belief that it was acting in the
legitimate exercise of its right under the mortgage contract in the
face of irregular payments made by private respondents and placed
reliance on the automatic acceleration clause in the contract. The
filing alone of the foreclosure application should not be a ground for
50
Loans in General – Articles 1933-1934, Art 1305; 1318
an award of moral damages in the same way that a clearly
unfounded civil action is not among the grounds for moral damages.
Private respondents counter that BPIIC was guilty of bad faith and
should be liable for said damages because it insisted on the payment
of amortization on the loan even before it was released. Further, it
did not make the corresponding deduction in the monthly
amortization to conform to the actual amount of loan released, and it
immediately initiated foreclosure proceedings when private
respondents failed to make timely payment.
But as admitted by private respondents themselves, they were
irregular in their payment of monthly amortization. Conformably
with our ruling in SSS, we can not properly declare BPIIC in bad
faith. Consequently, we should rule out the award of moral and
exemplary damages.11
However, in our view, BPIIC was negligent in relying merely on the
entries found in the deed of mortgage, without checking and
correspondingly adjusting its records on the amount actually
released to private respondents and the date when it was released.
Such negligence resulted in damage to private respondents, for
which an award of nominal damages should be given in recognition
of their rights which were violated by BPIIC.12 For this purpose, the
amount of ₱25,000 is sufficient.
Lastly, as in SSS where we awarded attorney’s fees because private
respondents were compelled to litigate, we sustain the award of
₱50,000 in favor of private respondents as attorney’s fees.
WHEREFORE, the decision dated February 28, 1997, of the Court of
Appeals and its resolution dated April 21, 1998, are AFFIRMED
WITH MODIFICATION as to the award of damages. The award of
moral and exemplary damages in favor of private respondents is
DELETED, but the award to them of attorney’s fees in the amount of
₱50,000 is UPHELD. Additionally, petitioner is ORDERED to pay
private respondents ₱25,000 as nominal damages. Costs against
petitioner.
SO ORDERED.
FACTS
Frank Roa obtained a loan from Ayala Investment and
Development Corporation (AIDC), for the construction of his house.
Said house and lot were mortgaged to AIDC to secure the loan. Roa
sold the properties to ALS and Litonjua, the latter paid in cash and
assumed the balance of Roa’s indebtedness wit AIDC. AIDC was not
willing to extend the old interest to private respondents and
proposed a grant of new loan of P500,000 with higher interest to be
applied to Roa’s debt, secured by the same property. Private
respondents executed a mortgage deed containing the stipulation.
The loan contract was signed on 31 March 1981 and was perfected on
13 September 1982, when the full loan was released to private
respondents.
BPIIC, AIDC’s predecessor, released to private respondents
P7,146.87, purporting to be what was left of their loan after full
payment of Roa’s loan. BPIIC filed for foreclosure proceedings on
the ground that private respondents failed to pay the mortgage
indebtedness. Private respondents maintained that they should not
be made to pay amortization before the actual release of the P500,000
loan. The suit was dismissed and affirmed by the CA.
ISSUE
Whether or not a contract of loan is a consensual contract.
HELD
The Court held in the negative. A loan contract is not a
consensual contract but a real contract. It is perfected only upon
delivery of the object of the contract. A contract o loan involves a
reciprocal obligation, wherein the obligation or promise of each
party is the consideration for that of the other; it is a basic principle
in reciprocal obligations that neither party incurs in delay, if the
other does not comply or is not ready to comply is a proper manner
with what is incumbent upon him
51
Loans in General – Articles 1933-1934, Art 1305; 1318
G.R. No. 171736 July 5, 2010
PENTACAPITAL INVESTMENT CORPORATION, Petitioner,
vs.
MAKILITO B. MAHINAY, Respondent.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 181482
PENTACAPITAL INVESTMENT CORPORATION, Petitioner,
vs.
MAKILITO B. MAHINAY, Respondent.
DECISION
NACHURA, J.:
Before us are two consolidated petitions for review on certiorari
under Rule 45 of the Rules of Court filed by petitioner Pentacapital
Investment Corporation. In G.R. No. 171736, petitioner assails the
Court of Appeals (CA) Decision1 dated December 20, 2005 and
Resolution2 dated March 1, 2006 in CA-G.R. SP No. 74851; while in
G.R. No. 181482, it assails the CA Decision3 dated October 4, 2007
and Resolution4 dated January 21, 2008 in CA-G.R. CV No. 86939.
The Facts
Petitioner filed a complaint for a sum of money against respondent
Makilito Mahinay based on two separate loans obtained by the
latter, amounting to ₱1,520,000.00 and ₱416,800.00, or a total amount
of ₱1,936,800.00. These loans were evidenced by two promissory
notes5 dated February 23, 1996. Despite repeated demands,
respondent failed to pay the loans, hence, the complaint. 6
In his Answer with Compulsory Counterclaim,7 respondent claimed
that petitioner had no cause of action because the promissory notes
on which its complaint was based were subject to a condition that
did not occur.8 While admitting that he indeed signed the
promissory notes, he insisted that he never took out a loan and that
the notes were not intended to be evidences of indebtedness. 9 By
way of counterclaim, respondent prayed for the payment of moral
and exemplary damages plus attorney’s fees.10
Respondent explained that he was the counsel of Ciudad Real
Development Inc. (CRDI). In 1994, Pentacapital Realty Corporation
(Pentacapital Realty) offered to buy parcels of land known as the
Molino Properties, owned by CRDI, located in Molino, Bacoor,
Cavite. The Molino Properties, with a total area of 127,708 square
meters, were sold at ₱400.00 per sq m. As the Molino Properties were
the subject of a pending case, Pentacapital Realty paid only the down
payment amounting to ₱12,000,000.00. CRDI allegedly instructed
Pentacapital Realty to pay the former’s creditors, including
respondent who thus received a check worth ₱1,715,156.90.11 It was
further agreed that the balance would be payable upon the
submission of an Entry of Judgment showing that the case involving
the Molino Properties had been decided in favor of CRDI. 12
Respondent, Pentacapital Realty and CRDI allegedly agreed that
respondent had a charging lien equivalent to 20% of the total
consideration of the sale in the amount of ₱10,277,040.00. Pending
the submission of the Entry of Judgment and as a sign of good faith,
respondent purportedly returned the ₱1,715,156.90 check to
Pentacapital Realty. However, the Molino Properties continued to be
haunted by the seemingly interminable court actions initiated by
different parties which thus prevented respondent from collecting
his commission.
On motion13 of respondent, the Regional Trial Court (RTC) allowed
him to file a Third Party Complaint14 against CRDI, subject to the
payment of docket fees.15
52
Loans in General – Articles 1933-1934, Art 1305; 1318
Admittedly, respondent earlier instituted an action for Specific
Performance against Pentacapital Realty before the RTC of Cebu
City, Branch 57, praying for the payment of his commission on the
sale of the Molino Properties.16 In an Amended
Complaint,17 respondent referred to the action he instituted as one of
Preliminary Mandatory Injunction instead of Specific Performance.
Acting on Pentacapital Realty’s Motion to Dismiss, the RTC
dismissed the case for lack of cause of action. 18 The dismissal became
final and executory.
With the dismissal of the aforesaid case, respondent filed a Motion to
Permit Supplemental Compulsory Counterclaim.19 In addition to the
damages that respondent prayed for in his compulsory
counterclaim, he sought the payment of his commission amounting
to ₱10,316,640.00, plus interest at the rate of 16% per annum, as well
as attorney’s fees equivalent to 12% of his principal
claim.20 Respondent claimed that Pentacapital Realty is a 100%
subsidiary of petitioner. Thus, although petitioner did not directly
participate in the transaction between Pentacapital Realty, CRDI and
respondent, the latter’s claim against petitioner was based on the
doctrine of piercing the veil of corporate fiction. Simply stated,
respondent alleged that petitioner and Pentacapital Realty are one
and the same entity belonging to the Pentacapital Group of
Companies.21
Over the opposition of petitioner, the RTC, in an Order22 dated
August 22, 2002, allowed the filing of the supplemental
counterclaim. Aggrieved, petitioner sought recourse in the CA
through a special civil action for certiorari, seeking to reverse and set
aside the RTC Order. The case was docketed as CA-G.R. SP No.
74851. On December 20, 2005, the CA rendered the assailed Decision
dismissing the petition.23 The appellate court sustained the
allowance of the supplemental compulsory counterclaim based on
the allegations in respondent’s pleading. The CA further concluded
that there was a logical relationship between the claims of petitioner
in its complaint and those of respondent in his supplemental
compulsory counterclaim. The CA declared that it was
inconsequential that respondent did not clearly allege the facts
required to pierce the corporate separateness of petitioner and its
subsidiary, the Pentacapital Realty.241avvphi1
Petitioner now comes before us in G.R. No. 171736, raising the
following issues:
A.
WHETHER RESPONDENT MAHINAY IS BARRED FROM
ASSERTING THE CLAIM CONTAINED IN HIS "SUPPLEMENTAL
COMPULSORY COUNTERCLAIM" ON THE GROUNDS OF (1)
RES JUDICATA, (2) WILLFUL AND DELIBERATE FORUM
SHOPPING, AND (3) FAILURE TO INTERPOSE SUCH CLAIM ON
TIME PURSUANT TO SECTION 2 OF RULE 9 OF THE RULES OF
COURT;
B.
WHETHER RESPONDENT MAHINAY’S SUPPLEMENTAL
COMPULSORY COUNTERCLAIM IS ACTUALLY A THIRD-
PARTY COMPLAINT AGAINST PENTACAPITAL REALTY, THE
INTRODUCTION OF WHICH REQUIRES THE PAYMENT OF THE
NECESSARY DOCKET FEES;
C.
ASSUMING FOR THE SAKE OF PURE ARGUMENT THAT IT IS
PROPER TO PIERCE THE CORPORATE VEIL AND TO ALLOW
RESPONDENT MAHINAY TO LODGE A "SUPPLEMENTAL
COMPULSORY COUNTERCLAIM" AGAINST HEREIN
PETITIONER PENTACAPITAL INVESTMENT FOR AN ALLEGED
OBLIGATION OF ITS SUBSIDIARY, PENTACAPITAL REALTY,
ON THE THEORY THAT THEY ARE "ONE AND THE SAME
COMPANY," WHETHER PENTACAPITAL REALTY SHOULD
HAVE AT LEAST BEEN MADE A PARTY TO THE CASE AS
53
Loans in General – Articles 1933-1934, Art 1305; 1318

RULED BY THIS HONORABLE COURT IN FILMERCO
COMMERCIAL CO., INC. VS. INTERMEDIATE APPELLATE
COURT;
D.
WHETHER RESPONDENT MAHINAY SHOULD BE ALLOWED
TO PRESENT EVIDENCE ON HIS SO-CALLED "SUPPLEMENTAL
COMPULSORY COUNTERCLAIM" INASMUCH AS (1)
RESPONDENT MAHINAY’S PLEADINGS ARE BEREFT OF ANY
ALLEGATIONS TO BUTTRESS THE MERGING OF
PENTACAPITAL REALTY AND PENTACAPITAL INVESTMENT
INTO ONE ENTITY AND THE CONSEQUENT IMPUTATION ON
THE LATTER OF THE FORMER’S SUPPOSED LIABILITY ON
RESPONDENT MAHINAY’S SUPPLEMENTAL COMPULSORY
COUNTERCLAIM, AND (2) THE INCIDENTS ALLEGEDLY
PERTAINING TO, AND WHICH WOULD THEREBY SUPPORT,
THE PIERCING OF CORPORATE VEIL ARE NOT EVIDENTIARY
MATTERS MATERIAL TO THE PROCEEDINGS BEFORE THE
COURT A QUO CONSIDERING THAT THE SAME ARE BEYOND
THE SCOPE OF THE PLEADINGS;
E.
OF APPEALS TO QUESTION THE JUDGMENT OF THE COURT A
QUO.25
There being no writ of injunction or Temporary Restraining Order
(TRO), the proceedings before the RTC continued and respondent
was allowed to present his evidence on his supplemental
compulsory counterclaim. After trial on the merits, the RTC
rendered a decision26 dated March 20, 2006, the dispositive portion
of which reads:
WHEREFORE, PREMISES CONSIDERED, plaintiff’s complaint is
hereby ordered dismissed for lack of merit. This court, instead, finds
that defendant was able to prove by a clear preponderance of
evidence his cause of action against plaintiff as to defendant’s
compulsory and supplemental counterclaims. That, therefore, this
court hereby orders the plaintiff to pay unto defendant the following
sums, to wit:
1. ₱1,715,156.90 representing the amount plaintiff is
obligated to pay defendant as provided for in the deed of
sale and the supplemental agreement, plus interest at the
rate of 16% per annum, to be computed from September 23,
1998 until the said amount shall have been fully paid;

WHETHER THE DOCTRINE OF PIERCING THE CORPORATE 2. Php 10,316,640.00 representing defendant’s share of the
VEIL MAY BE INVOKED AND APPLIED IN ORDER TO EVADE proceeds of the sale of the Molino property (defendant’s
AN OBLIGATION AND FACILITATE PROCEDURAL charging lien) plus interest at the rate of 16% per annum, to
WRONGDOING; AND be computed from September 23, 1998 until the said amount
shall have been fully paid;
F.
3. Php 50,000.00 as attorney’s fees based on quantum meruit;
WHETHER PETITIONER PENTACAPITAL INVESTMENT
COMMITTED FORUM SHOPPING WHEN IT FILED THE 4. Php 50,000.00 litigation expenses, plus costs of suit.
PRESENT PETITION DURING THE PENDENCY OF THE MOTION
FOR RECONSIDERATION IT FILED BEFORE THE COURT A QUO
AND, SUBSEQUENTLY, OF THE APPEAL BEFORE THE COURT

54
Loans in General – Articles 1933-1934, Art 1305; 1318
This court finds it unnecessary to rule on the third party complaint,
the relief prayed for therein being dependent on the possible award
by this court of the relief of plaintiff’s complaint.27
On appeal, the CA, in CA-G.R. CV No. 86939, affirmed in toto the
above decision. The CA found no basis for petitioner to collect the
amount demanded, there being no perfected contract of loan for lack
of consideration.28 As to respondent’s supplemental compulsory
counterclaim, quoting the findings of the RTC, the appellate court
held that respondent was able to prove by preponderance of
evidence that it was the intent of Pentacapital Group of Companies
and CRDI to give him ₱10,316,640.00 and ₱1,715,156.90.29 The CA
likewise affirmed the award of interest at the rate of 16% per annum,
plus damages.30
Unsatisfied, petitioner moved for reconsideration of the aforesaid
Decision, but it was denied in a Resolution31 dated January 21, 2008.
Hence, the present petition in G.R. No. 181482, anchored on the
following arguments:
A.
Considering that the inferences made in the present case are
manifestly absurd, mistaken or impossible, and are even contrary to
the admissions of respondent Mahinay, and inasmuch as the
judgment is premised on a misapprehension of facts, this Honorable
Court may validly take cognizance of the errors relative to the
findings of fact of both the Honorable Court of Appeals and the
court a quo.
B.
Respondent Mahinay is liable to petitioner PentaCapital Investment
for the PhP1,936,800.00 loaned to him as well as for damages and
attorney’s fees.
1.
The Honorable Court of Appeals erred in concluding that
respondent Mahinay failed to receive the money he
borrowed when there is not even any dispute as to the fact
that respondent Mahinay did indeed receive the
PhP1,936,800.00 from petitioner PentaCapital Investment.
2.
The Promissory Notes executed by respondent Mahinay are
valid instruments and are binding upon him.
C.
Petitioner PentaCapital Investment cannot be held liable on
the supposed "supplemental compulsory counterclaim" of
respondent Mahinay.
1.
The findings of fact as well as the conclusions arrived at by
the Court of Appeals in its decision were based on mistaken
assumptions and on erroneous appreciation of the evidence
on record.
2.
There is no evidence on record to support the merging of
PentaCapital Realty and petitioner PentaCapital Investment
into one entity and the consequent imputation on the latter
of the former’s supposed liability on respondent Mahinay’s
supplemental compulsory counterclaim.
3.
55
Loans in General – Articles 1933-1934, Art 1305; 1318
Inasmuch as the claim of respondent Mahinay is supposedly
against PentaCapital Realty, and considering that petitioner
PentaCapital Investment is a separate, distinct entity from
PentaCapital Realty, the latter should have been impleaded
as it is an indispensable party.
D.
Assuming for the sake of pure argument that it is proper to
disregard the corporate fiction and to consider herein petitioner
PentaCapital Investment and its subsidiary, PentaCapital Realty, as
one and the same entity, respondent Mahinay’s "supplemental
compulsory counterclaim" must still necessarily fail.
1.
The cause of action of respondent Mahinay, as contained in
his "supplemental compulsory counterclaim," is already
barred by a prior judgment (res judicata).
2.
Considering that the dismissal on the merits by the RTC
Cebu of respondent Mahinay’s complaint against
PentaCapital Realty for attorney’s fees has attained finality,
respondent Mahinay committed a willful act of forum
shopping when he interposed the exact same claim in the
proceedings a quo as a supposed supplemental compulsory
counterclaim against what he claims to be "one and the
same" company.
3.
Respondent Mahinay’s supplemental compulsory
counterclaim is actually a third party complaint against
PentaCapital Realty; the filing thereof therefore requires the
payment of the necessary docket fees.
E.
The doctrine of piercing the corporate veil is an equitable remedy
which cannot and should not be invoked, much less applied, in
order to evade an obligation and facilitate procedural wrongdoing. 32
Simply put, the issues for resolution are: 1) whether the admission of
respondent’s supplemental compulsory counterclaim is proper; 2)
whether respondent’s counterclaim is barred by res judicata; and (3)
whether petitioner is guilty of forum-shopping.
The Court’s Ruling
Admission of Respondent’s
Supplemental Compulsory Counterclaim
The pertinent provision of the Rules of Court is Section 6 of Rule 10,
which reads:
Sec. 6. Supplemental pleadings. – Upon motion of a party, the court
may, upon reasonable notice and upon such terms as are just, permit
him to serve a supplemental pleading setting forth transactions,
occurrences or events which have happened since the date of the
pleading sought to be supplemented. The adverse party may plead
thereto within ten (10) days from notice of the order admitting the
supplemental pleading.
As a general rule, leave will be granted to a party who desires to file
a supplemental pleading that alleges any material fact which
happened or came within the party’s knowledge after the original
pleading was filed, such being the office of a supplemental pleading.
The application of the rule would ensure that the entire controversy
56
Loans in General – Articles 1933-1934, Art 1305; 1318
might be settled in one action, avoid unnecessary repetition of effort
and unwarranted expense of litigants, broaden the scope of the
issues in an action owing to the light thrown on it by facts, events
and occurrences which have accrued after the filing of the original
pleading, and bring into record the facts enlarging or charging the
kind of relief to which plaintiff is entitled. It is the policy of the law
to grant relief as far as possible for wrongs complained of, growing
out of the same transaction and thus put an end to litigation. 33
In his Motion to Permit Supplemental Compulsory Counterclaim,
respondent admitted that, in his Answer with Compulsory
Counterclaim, he claimed that, as one of the corporations composing
the Pentacapital Group of Companies, petitioner is liable to him for
₱10,316,640.00, representing 20% attorney’s fees and share in the
proceeds of the sale transaction between Pentacapital Realty and
CRDI. In the same pleading, he further admitted that he did not
include this amount in his compulsory counterclaim because he had
earlier commenced another action for the collection of the same
amount against Pentacapital Realty before the RTC of Cebu. With
the dismissal of the RTC-Cebu case, there was no more legal
impediment for respondent to file the supplemental counterclaim.
Moreover, in his Answer with Compulsory Counterclaim,
respondent already alleged that he demanded from Pentacapital
Group of Companies to which petitioner supposedly belongs, the
payment of his 20% commission. This, in fact, was what prompted
respondent to file a complaint before the RTC-Cebu for preliminary
mandatory injunction for the release of the said amount.
Given these premises, it is obvious that the alleged obligation of
petitioner already existed and was known to respondent at the time
of the filing of his Answer with Counterclaim. He should have
demanded payment of his commission and share in the proceeds of
the sale in that Answer with Compulsory Counterclaim, but he did
not. He is, therefore, proscribed from incorporating the same and
making such demand via a supplemental pleading. The
supplemental pleading must be based on matters arising subsequent
to the filing of the original pleading related to the claim or defense
presented therein, and founded on the same cause of
action.34 Supplemental pleadings must state transactions,
occurrences or events which took place since the time the pleading
sought to be supplemented was filed.35
Even on the merits of the case, for reasons that will be discussed
below, respondent’s counterclaim is doomed to fail.
Petitioner’s Complaint
In its complaint for sum of money, petitioner prayed that respondent
be ordered to pay his obligation amounting to ₱1,936,800.00 plus
interest and penalty charges, and attorney’s fees. This obligation was
evidenced by two promissory notes executed by respondent.
Respondent, however, denied liability on the ground that his
obligation was subject to a condition that did not occur. He
explained that the promissory notes were dependent upon the
happening of a remote event that the parties tried to anticipate at the
time they transacted with each other, and the event did not
happen.36 He further insisted that he did not receive the proceeds of
the loan.
To ascertain whether or not respondent is bound by the promissory
notes, it must be established that all the elements of a contract of loan
are present. Like any other contract, a contract of loan is subject to
the rules governing the requisites and validity of contracts in
general. It is elementary in this jurisdiction that what determines the
validity of a contract, in general, is the presence of the following
elements: (1) consent of the contracting parties; (2) object certain
which is the subject matter of the contract; and (3) cause of the
obligation which is established.37
In this case, respondent denied liability on the ground that the
promissory notes lacked consideration as he did not receive the
proceeds of the loan.
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Loans in General – Articles 1933-1934, Art 1305; 1318
We cannot sustain his contention.
Under Article 1354 of the Civil Code, it is presumed that
consideration exists and is lawful unless the debtor proves the
contrary.38 Moreover, under Section 3, Rule 131 of the Rules of Court,
the following are disputable presumptions: (1) private transactions
have been fair and regular; (2) the ordinary course of business has
been followed; and (3) there was sufficient consideration for a
contract.39 A presumption may operate against an adversary who
has not introduced proof to rebut it. The effect of a legal
presumption upon a burden of proof is to create the necessity of
presenting evidence to meet the legal presumption or the prima facie
case created thereby, and which, if no proof to the contrary is
presented and offered, will prevail. The burden of proof remains
where it is, but by the presumption, the one who has that burden is
relieved for the time being from introducing evidence in support of
the averment, because the presumption stands in the place of
evidence unless rebutted.40
In the present case, as proof of his claim of lack of consideration,
respondent denied under oath that he owed petitioner a single
centavo. He added that he did not apply for a loan and that when he
signed the promissory notes, they were all blank forms and all the
blank spaces were to be filled up only if the sale transaction over the
subject properties would not push through because of a possible
adverse decision in the civil cases involving them (the properties).
He thus posits that since the sale pushed through, the promissory
notes did not become effective.
Contrary to the conclusions of the RTC and the CA, we find such
proof insufficient to overcome the presumption of consideration. The
presumption that a contract has sufficient consideration cannot be
overthrown by the bare, uncorroborated and self-serving assertion of
respondent that it has no consideration.41 The alleged lack of
consideration must be shown by preponderance of evidence.42
As it now appears, the promissory notes clearly stated that
respondent promised to pay petitioner ₱1,520,000.00 and
₱416,800.00, plus interests and penalty charges, a year after their
execution. Nowhere in the notes was it stated that they were subject
to a condition. As correctly observed by petitioner, respondent is not
only a lawyer but a law professor as well. He is, therefore, legally
presumed not only to exercise vigilance over his concerns but, more
importantly, to know the legal and binding effects of promissory
notes and the intricacies involving the execution of negotiable
instruments including the need to execute an agreement to
document extraneous collateral conditions and/or agreements, if
truly there were such.43 This militates against respondent’s claim that
there was indeed such an agreement. Thus, the promissory notes
should be accepted as they appear on their face.
Respondent’s liability is not negated by the fact that he has
uncollected commissions from the sale of the Molino properties. As
the records of the case show, at the time of the execution of the
promissory notes, the Molino properties were subject of various
court actions commenced by different parties. Thus, the sale of the
properties and, consequently, the payment of respondent’s
commissions were put on hold. The non-payment of his
commissions could very well be the reason why he obtained a loan
from petitioner.
In Sierra v. Court of Appeals,44 we held that:
A promissory note is a solemn acknowledgment of a debt and a
formal commitment to repay it on the date and under the conditions
agreed upon by the borrower and the lender. A person who signs
such an instrument is bound to honor it as a legitimate obligation
duly assumed by him through the signature he affixes thereto as a
token of his good faith. If he reneges on his promise without cause,
he forfeits the sympathy and assistance of this Court and deserves
instead its sharp repudiation.
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Loans in General – Articles 1933-1934, Art 1305; 1318
Aside from the payment of the principal obligation of ₱1,936,800.00,
the parties agreed that respondent pay interest at the rate of 25%
from February 17, 1997 until fully paid. Such rate, however, is
excessive and thus, void. Since the stipulation on the interest rate is
void, it is as if there was no express contract thereon. To be sure,
courts may reduce the interest rate as reason and equity
demand.45 In this case, 12% interest is reasonable.
The promissory notes likewise required the payment of a penalty
charge of 3% per month or 36% per annum. We find such rates
unconscionable. This Court has recognized a penalty clause as an
accessory obligation which the parties attach to a principal
obligation for the purpose of ensuring the performance thereof by
imposing on the debtor a special prestation (generally consisting of
the payment of a sum of money) in case the obligation is not fulfilled
or is irregularly or inadequately fulfilled.46 However, a penalty
charge of 3% per month is unconscionable;47hence, we reduce it to
1% per month or 12% per annum, pursuant to Article 1229 of the
Civil Code which states:
Art. 1229. The judge shall equitably reduce the penalty when the
principal obligation has been partly or irregularly complied with by
the debtor. Even if there has been no performance, the penalty may
also be reduced by the courts if it is iniquitous or unconscionable. 48
Lastly, respondent promised to pay 25% of his outstanding
obligations as attorney’s fees in case of non-payment thereof.
Attorney’s fees here are in the nature of liquidated damages. As long
as said stipulation does not contravene law, morals, or public order,
it is strictly binding upon respondent. Nonetheless, courts are
empowered to reduce such rate if the same is iniquitous or
unconscionable pursuant to the above-quoted provision.49 This
sentiment is echoed in Article 2227 of the Civil Code, to wit:
Art. 2227. Liquidated damages, whether intended as an indemnity or
a penalty, shall be equitably reduced if they are iniquitous or
unconscionable.
Hence, we reduce the stipulated attorney’s fees from 25% to 10%. 50
Respondent’s Counterclaim and Supplemental Counterclaim
The RTC, affirmed by the CA, granted respondent’s counterclaims as
it applied the doctrine of piercing the veil of corporate fiction. It is
undisputed that the parties to the contract of sale of the subject
properties are Pentacapital Realty as the buyer, CRDI as the seller,
and respondent as the agent of CRDI. Respondent insisted, and the
RTC and the CA agreed, that petitioner, as the parent company of
Pentacapital Realty, was aware of the sale transaction, and that it
was the former who paid the consideration of the sale. Hence, they
concluded that the two corporations should be treated as one entity.
Petitioner assails the CA Decision sustaining the grant of
respondent’s counterclaim and supplemental counterclaim on the
following grounds: first, respondent’s claims are barred by res
judicata, the same having been adjudicated with finality by the RTC-
Cebu in Civil Case No. CEB-25032; second, piercing the veil of
corporate fiction is without basis; third, the case is dismissible for
failure to implead Pentacapital Realty as indispensable party; and
last, respondent’s supplemental counterclaim is actually a third
party complaint against Pentacapital Realty, the filing thereof
requires the payment of the necessary docket fees.
Petitioner’s contentions are meritorious.
Res judicata means "a matter adjudged; a thing judicially acted upon
or decided; a thing or matter settled by judgment." It lays the rule
that an existing final judgment or decree rendered on the merits,
without fraud or collusion, by a court of competent jurisdiction,
upon any matter within its jurisdiction, is conclusive of the rights of
the parties or their privies, in all other actions or suits in the same or
any other judicial tribunal of concurrent jurisdiction on the points
and matters in issue in the first suit.51
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Loans in General – Articles 1933-1934, Art 1305; 1318
The requisites of res judicata are:
(1) The former judgment or order must be final;
(2) It must be a judgment on the merits;
(3) It must have been rendered by a court having jurisdiction
over the subject matter and the parties; and
(4) There must be between the first and second actions,
identity of parties, subject matter, and cause of action. 52
These requisites are present in the instant case. It is undisputed that
respondent instituted an action for Preliminary Mandatory
Injunction against Pentacapital Realty, before the RTC of Cebu City,
docketed as Civil Case No. CEB-25032. On motion of Pentacapital
Realty, in an Order dated August 15, 2001, the court dismissed the
complaint on two grounds: 1) non-payment of the correct filing fee
considering that the complaint was actually a collection of sum of
money although denominated as Preliminary Mandatory Injunction;
and 2) lack of cause of action. The court treated the complaint as a
collection suit because respondent was seeking the payment of his
unpaid commission or share in the proceeds of the sale of the Molino
Properties. Additionally, the RTC found that respondent had no
cause of action against Pentacapital Realty, there being no privity of
contract between them. Lastly, the court held that it was CRDI which
agreed that 20% of the total consideration of the sale be paid and
delivered to respondent.53Instead of assailing the said Order,
respondent filed his supplemental compulsory counterclaim,
demanding again the payment of his commission, this time, against
petitioner in the instant case. The Order, therefore, became final and
executory.
Respondent’s supplemental counterclaim against petitioner is
anchored on the doctrine of piercing the veil of corporate fiction.
Obviously, after the dismissal of his complaint before the RTC-Cebu,
he now proceeds
against petitioner, through a counterclaim, on the basis of the same
cause of action. Thus, if we follow respondent’s contention that
petitioner and Pentacapital Realty are one and the same entity, the
latter being a subsidiary of the former, respondent is barred from
instituting the present case based on the principle of bar by prior
judgment. The RTC-Cebu already made a definitive conclusion that
Pentacapital Realty is not a privy to the contract between respondent
and CRDI. It also categorically stated that it was CRDI which agreed
to pay respondent’s commission equivalent to 20% of the proceeds of
the sale. With these findings, and considering that petitioner’s
alleged liability stems from its supposed relation with Pentacapital
Realty, logic dictates that the findings of the RTC-Cebu, which had
become final and executory, should bind petitioner.
It is well-settled that when material facts or questions in issue in a
former action were conclusively settled by a judgment rendered
therein, such facts or questions constitute res judicata and may not
again be litigated in a subsequent action between the same parties or
their privies regardless of the form of the latter.54 Absolute identity
of parties is not required, and where a shared identity of interest is
shown by the identity of the relief sought by one person in a prior
case and the second person in a subsequent case, such was deemed
sufficient.55 There is identity of parties not only when the parties in
the cases are the same, but also between those in privity with them.
No other procedural law principle is indeed more settled than that
once a judgment becomes final, it is no longer subject to change,
revision, amendment, or reversal, except only for correction of
clerical errors, or the making of nunc pro tunc entries which cause no
prejudice to any party, or where the judgment itself is void. The
underlying reason for the rule is two-fold: (1) to avoid delay in the
administration of justice and thus make orderly the discharge of
judicial business; and (2) to put judicial controversies to an end, at
the risk of occasional errors, inasmuch as controversies cannot be
60
Loans in General – Articles 1933-1934, Art 1305; 1318
allowed to drag on indefinitely and the rights and obligations of
every litigant must not hang in suspense for an indefinite period of
time.56
In view of the foregoing disquisitions, we find no necessity to
discuss the other issues raised by petitioner.
Forum Shopping
For his part, respondent adopts the conclusions made by the RTC
and the CA in granting his counterclaims. He adds that the petition
should be dismissed on the ground of forum-shopping. He argues
that petitioner is guilty of forum-shopping by filing the petition for
review (G.R. No. 181482), assailing the CA Decision dated October 4,
2007, despite the pendency of G.R. No. 171736 assailing the CA
Decision dated December 20, 2005.
We do not agree with respondent.
Forum-shopping is the act of a litigant who repetitively availed of
several judicial remedies in different courts, simultaneously or
successively, all substantially founded on the same transactions and
the same essential facts and circumstances, and all raising
substantially the same issues, either pending in or already resolved
adversely by some other court, to increase his chances of obtaining a
favorable decision if not in one court, then in another.57
What is important in determining whether forum-shopping exists is
the vexation caused the courts and parties-litigants by a party who
asks different courts and/or administrative agencies to rule on the
same or related causes and/or grant the same or substantially the
same reliefs, in the process creating the possibility of conflicting
decisions being rendered by the different fora upon the same
issues.58
Forum-shopping can be committed in three ways: (1) by filing
multiple cases based on the same cause of action and with the same
prayer, the previous case not having been resolved yet (where the
ground for dismissal is litis pendentia); (2) by filing multiple cases
based on the same cause of action and with the same prayer, the
previous case having been finally resolved (where the ground for
dismissal is res judicata); and (3) by filing multiple cases based on
the same cause of action but with different prayers (splitting of
causes of action, where the ground for dismissal is also either litis
pendentia or res judicata).591avvphi1
More particularly, the elements of forum-shopping are: (a) identity
of parties or at least such parties that represent the same interests in
both actions; (b) identity of rights asserted and reliefs prayed for, the
relief being founded on the same facts; (c) identity of the two
preceding particulars, such that any judgment rendered in the other
action will, regardless of which party is successful, amount to res
judicata in the action under consideration.60
These elements are not present in this case. In G.R. No. 171736,
petitioner assails the propriety of the admission of respondent’s
supplemental compulsory counterclaim; while in G.R. No. 181482,
petitioner assails the grant of respondent’s supplemental
compulsory counterclaim. In other words, the first case originated
from an interlocutory order of the RTC, while the second case is an
appeal from the decision of the court on the merits of the case. There
is, therefore, no forum-shopping for the simple reason that the
petition and the appeal involve two different and distinct issues.
WHEREFORE, premises considered, the petitions are hereby
GRANTED. The Decisions and Resolutions of the Court of Appeals
dated December 20, 2005 and March 1, 2006, in CA-G.R. SP No.
74851, and October 4, 2007 and January 21, 2008, in CA-G.R. CV No.
86939, are REVERSED and SET ASIDE.
Respondent Makilito B. Mahinay is ordered to pay petitioner
Pentacapital Investment Corporation ₱1,936,800.00 plus 12% interest
61
Loans in General – Articles 1933-1934, Art 1305; 1318

per annum, and 12% per annum penalty charge, starting February
17, 1997. He

is likewise ordered to pay 10% of his outstanding obligation as

attorney’s fees. No pronouncement as to costs.

SO ORDERED.

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Loans in General – Articles 1933-1934, Art 1305; 1318
G.R. No. 90270 July 24, 1992
ARMANDO V. SIERRA, petitioner,
vs.
HON. COURT OF APPEALS, EPIFANIA EBARLE, SOL AND ELE
EBARLE, respondents.
CRUZ, J.:
A promissory note is supposed to be a genuine document
acknowledging a loan duly received and promising to pay the same
on the date indicated in accordance with the conditions therein set
forth. There is no record — is there cannot be — of the number of
times such a promise has been fulfilled and the debt discharged. But
our casebooks are replete with reports of litigations where the
promissory note has been rejected and even indignantly denounced.
The usual objection is that it is spurious or fabricated, or vitiated by
fraud or duress or undue influence, or not reflective of the true
intention of the parties.
The present petition is a case in point.
On November 2, 1984, the petitioner filed a complaint against the
private respondents in the Regional Trial Court of Dumaguete City.
He sought recovery of a sum of money be allegedly lent them under
the following promissory note which he annexed to his complaint:
PROMISSORY NOTE
For value received, WE, EPIFANIA EBARLE, SOL
EBARLE, & ELE EBARLE, hereby promise to pay
Mr. Armando V. Sierra, his heirs and assigns, the
sum of EIGHTY FIVE THOUSAND PESOS ONLY
(P85,000.00) Philippine Currency, on or before
October 8, 1984 at his residence in Dumaguete City.
In case of default, I will shoulder all expenses
incurred in the collection and attorney's fees of
P1,000.00 plus an interest of 12% per annum.
(Sgd.) EPIF September 8, 1984
Dumaguete City
WITNESSES:
1. (Illegible) 2. _______________
—————
A SUBSCRIBED AND SWORN TO BEFORE ME this
8th day of September 1984 at the City of Dumaguete.
(Sgd.) FIn their separate answers, the private respondents denied
under oath "the genuineness, due execution, legality and validity" of
the promissory note. They alleged that the note was executed "under
duress, fear and undue influence." As affirmative defenses, they
claimed that they had been tacked into signing the note for
P85,000.00 (and another note for P54,550.00, but not the subject of
this suit) and that the amount owing to the petitioner was only
P20,000.00. This represented the loan he had extended to Epifania
Ebarle, mother of the other private respondents, Sol Ebarle and Ele
Ebarle. They also counterclaimed for damages.
At the trial, the petitioner testified that he had lent the private
respondents the sum of P85,000.00 which they said they needed "to
pay some cattle for fattening to be inspected by the inspector of the
Land Bank that day" in connection with their application for a loan
of P400,000.00 from the said bank to finance their logging and cattle
business. The application was apparently not approved. When the
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Loans in General – Articles 1933-1934, Art 1305; 1318
note fell due, he made demands for their payment, which were
ignored. He thereupon filed is complaint.
For their part, the private respondents declared that on September 8,
1984, they were asked by the petitioner to sign two promissory
notes, one for P85,000.00 and another for P54,550.00, in consideration
of Epifania Ebarle's outstanding debt of P20,000.00 to him. They said
they initially objected because of the amounts indicated in the said
notes. They eventually agreed, however, on the petitioner's
assurance that the documents were a mere formality that he had to
show his business partner, who was demanding immediate payment
of the said loan. The petitioner also said that if a complaint was filed
against them for recovery under the notes, what they should do was
not answer so that they would be declared in default. A new
agreement would then be concluded for the correct amount of
Epifania Ebarle's loan and with easier terms of payment.
On July 21, 1988, the trial court rendered a decision holding that the
promissory note for P85,000.00 was invalid and that the private
respondents were liable to the petitioner only for the loan of
P20,000.00. 1 On appeal, this decision was affirmed by the
respondents court. 2 The petitioner then came to this Court to seek
reversal of the courts below on factual and legal grounds.
The petitioner argues that the Court of Appeals committed reversible
error in the interpretation of the promissory note in light of the
established facts. It also erred in not according the said note the
presumption of validity as a duly executed public document.
Required to submit a comment, the private respondents contended
that the assignment of errors raised only questions of fact, the
determination of which by the lower courts was as a rule final and
conclusive upon this Court. In reply, the petitioner submitted that
the erroneous findings of fact made by the respondent court
removed the case from the general rule and justified a review of the
challenged decision.
The Court has gone over the records of this case and finds that there
was indeed a misapprehension of facts by the trial and appellate
courts. The testimonies of the private respondents on the
circumstances surrounding the execution of the promissory note are,
in our view, not believable.
The private respondents are not unlettered peasants with a modicum
of intelligence and unfamiliar with business and legal matters. They
are educated persons with not a little experience in business affairs
and possibly even legal transactions. They own and operate an
hacienda consisting of 33 hectares. Epifania Ebarle was a professor in
English for 25 years at the Silliman University. Sol Ebarle holds a
degree in commerce, Ele Ebarle in agriculture. There is no question
that these three professionals fully understood the import and
consequences of what they were doing when they signed the two
promissory notes on September 8, 1984.
The notes were written in plain English and consisted of only two
short paragraphs. There was no fine print to conceal hidden
meanings. Each was a simple promise to pay to the petitioner, for
value received, the amounts indicated therein not later than October
8, 1984, at his residence and to assume all litigation expenses, with
12% interest, in case of default.
The private respondents say they had misgivings about signing the
notes but they signed them just the same upon the petitioner's
prodding. That is strange, considering their insistence that all
Epifania Ebarle owed the petitioner was the amount of P20,000.00,
which she claimed to have received earlier. If that was all she really
obtained, it is difficult to understand why all three of them signed
the promissory notes for a total indebtedness of P139,550.00 or
almost seven times the mother's alleged loan. Their natural reaction
when asked to sign the notes would have been an irate refusal. What
they should have done was demand the correction of the notes to
reflect the true amount of the debt — in only one note — and to sign
it only after such correction. Instead, each of them, one after the
other, willingly signed the two notes, the first in the morning and the
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Loans in General – Articles 1933-1934, Art 1305; 1318
second in the afternoon of the same day, without any reservation
whatsoever. signing of the notes as far as they themselves were
concerned. After all, Epifania Ebarle had already received the
alleged original and only loan of P20,000.00, or so they say, which
they were simply being made to affirm. Moreover, as they also insist,
they had not received, nor did they expect to receive, the amounts
indicated in the two notes.
In this connection, we cannot agree that they could not have received
the amounts stated in the notes because it was not likely that the
petitioner would keep such large amounts of cash in his house. That
is a mere conjecture. The petitioner operates his own vineyard as
well as his father's hacienda, besides dealing in the sale of cars and
real estate. His transactions require ready cash now and then, which
is why he keeps substantial sums of money available in his house.
In any case, as he says correctly, it is his prerogative to keep money
in his house in whatever amount he pleases, especially since he feels
quite secure there with his guards and dogs. What is important is
that the notes the private respondents signed expressly and
categorically acknowledged that they received the specific amounts
indicated therein. Whether the money came from the bank or from
the petitioner's house did not affect the validity of their
acknowledged indebtedness.
Epifania Ebarle testified that she was also worried about the
petitioner's assurance that if they allowed themselves to be declared
in default when sued, a new agreement with easier terms and for the
correct amount of P20,000.00 would be concluded between them.
Asked if she understood what default meant, she said she did.
Nevertheless, despite her uneasiness, she signed the two promissory
notes one after the other, and so did her children even if they also
felt a similar anxiety. It was only afterwards, she said, that she "went
to a lawyer."
Remarkably, all three of the private respondents signed the two notes
notwithstanding their claimed individual reluctance. One of them at
least could have voiced his or her apprehensions and made efforts to
be dissuade the others from signing, but no one did. Everyone
signed. And not only that. Having signed one note in the
morning, allof them again signed the second promissory note in the
afternoon, again with no one expressing his or her misgivings. It is as
if they were all mesmerized by the petitioner into signing the
promissory notes although, as they now say in hindsight, they were
all doing so against their better judgment.
The facts belie this supposition.
Sol Ebarle admitted on the stand that no harassment or threat in any
form was employed by the petitioner upon any of them. 5
Neither were they subjected to any undue influence, which is
described in the Civil Code thus:
Art. 1337. There is undue influence when a person
takes improper advantage of his power over the will
of another, depriving the latter of a reasonable
freedom of choice. The following circumstances
shall be considered: the confidential, family,
spiritual and other relations between the parties, or
the fact that the person alleged to have been unduly
influenced was suffering from mental weakness, or
was ignorant or in financial distress.
This definition is amplified by Tolentino, who says that "undue
influence is any means employed upon a party which, under the
circumstances, he could not well resist, and which controlled his
volition and induced him to give his consent to the contract, which
otherwise he would not have entered into. It must, in some measure,
destroy the free agency of a party and interfere with the exercise of
that independent discretion which is necessary for determining the
advantage or disadvantage of a proposed contract. In every such
case, there is a moral coercion. The moral coercion may be effected
65
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through threats, expressed or implied, or through harassing
tactics." 6
Fraud must also be discounted, for according to the Civil Code:
Art. 1338. There is fraud when, through insidious
words or machinations of one of the contracting
parties, the other is induced to enter into a contract
which without them, he would not have agreed to.
Art. 1344. In order that fraud may make a contract
voidable, it should be serious and should not have
been employed by both contracting parties.
To quote Tolentino again, the "misrepresentation constituting the
fraud must be established by full, clear, and convincing evidence,
and not merely by a preponderance thereof. The deceit must be
serious. The fraud is serious when it is sufficient to impress, or to
lead an ordinarily prudent person into error; that which cannot
deceive a prudent person cannot be a ground for nullity. The
circumstances of each case should be considered, taking into account
the personal conditions of the victim." 7
The non-presentation at the trial of the notary public who attested
the promissory notes did not have the effect of invalidating them. It
is well settled that the evidentiary nature of public documents must
be sustained in the absence of strong, complete, and conclusive proof
of its nullity.
A notarial document, guaranteed by public
attestation in accordance with the law, must be
sustained in full force and effect so long as he who
impugns it does not present strong, complete, and
conclusive proof of its falsity or nullity on accounts
of some flaw or defect provided against by law. 8
A mere denial of the receipt of the loan, which is
stated in a clear and unequivocal manner in a public
instrument, is not sufficient. To overthrow the
recitals of a mortgage deed, clear, convincing and
more than merely preponderant evidence is
necessary. A contrary rule would throw wide open
doors to fraud. 9
The mere assertion of the private respondents that the notes were
not notarized in their presence does not meet this standard of proof.
In any event, a promissory note does not have to be notarized to be
binding. The private respondents have admitted signing the two
notes and they have not succeeded in proving that they did so
"under duress, fear and undue influence."
The private respondents' argument that the two promissory notes
are spurious because they were signed separately on the same day is
in fact an argument against them. As they acutely observe, if indeed
the purpose of the notes was simply to acknowledge and renew the
P20,000.00 loan, then it could have been accomplished in only one
promissory note specifying this amount. True enough. But the point
is that the purpose was not to acknowledge the supposed loan. It
was to acknowledge the two separate loans. The fact that two
promissory notes were signed indicates that two different loans were
actually extended, not simultaneously but successively, one in the
morning and the other in the afternoon of September 8, 1984.
It is a no less significant consideration that no written evidence of the
supposed original loan of P20,000.00 extended to Epifania Ebarle has
been presented. None of the private respondents has produced a
copy of any promissory note therefor, to prove that there was really
such a loan. As a businessman, and there being no special
relationship between him and the private respondents, the petitioner
would have required a written acknowledgment of that loan, and
given a copy of such instrument to the borrower.
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Loans in General – Articles 1933-1934, Art 1305; 1318

In sum, this Court is asked to believe that three highly educated as moral damages and P15,000.00 as attorney's fees. Costs against the
persons, to acknowledge an alleged debt of only P20,000.00 owed by respondents.
one of them, signed on the same day two notarized promissory notes
for the total amount of P139,550.00 on the assurance by the petitioner SO ORDERED.
that it was a mere "formality." The notes were written in plain
English, without the "whereases" and "wherefores" of the legal
idiom, and could not have been misunderstood or not
comprehended by them. What is even worse, the private
respondents insist that when they expressed their hesitation, the
petitioner assured them that if they were sued on the notes, all they
should do was allow themselves to be declared in default and a new
and more liberal agreement specifying the correct amount of their
loan would then be concluded. Although they admitted knowing the
meaning of default, they nevertheless accepted this assurance and
freely signed the notes without reservation. None of the three private
respondents tried to dissuade the others when all of them signed the
first note in the morning, and this same acquiescence was repeated
when all three of them, again in common concert, signed the second
note that same afternoon.

The defense is preposterous. Despite its acceptance by the lower

courts, we reject it as a rank invention.

A promissory note is a solemn acknowledgment of a debt and a

formal commitment to repay it on the date and under the conditions
agreed upon by the borrower and the lender. A person who signs
such an instrument is bound to honor it as a legitimate obligation
duly assumed by him through the signature he affixes thereto as a
token of his good faith. If he reneges on his promise without cause,
he forfeits the sympathy and assistance of this Court and deserves
instead its sharp repudiation. So must it be in the case at bar.

WHEREFORE, the appealed decision is REVERSED and SET ASIDE

and a new judgment is hereby rendered requiring the private
respondents to pay the petitioner the sum of P85,000.00, with 12%
interest from September 8, 1984, until full payment, plus P15,000.00

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Loans in General – Articles 1933-1934, Art 1305; 1318
G.R. No. L-63419 December 18, 1986
FLORENTINA A. LOZANO, petitioner,
vs.
THE HONORABLE ANTONIO M. MARTINEZ, in his capacity as
Presiding Judge, Regional Trial Court, National Capital Judicial
Region, Branch XX, Manila, and the HONORABLE JOSE B.
FLAMINIANO, in his capacity as City Fiscal of
Manila, respondents.
G.R. No. L-66839-42 December 18, 1986
LUZVIMINDA F. LOBATON petitioner,
vs.
HONORABLE GLICERIO L. CRUZ, in his capacity as Presiding
Executive Judge, Branch V, Region IV, Regional Trial Court,
sitting at Lemery, Batangas, THE PROVINCIAL FISCAL OF
BATANGAS, and MARIA LUISA TORDECILLA, respondents.
G.R No. 71654 December 18, 1986
ANTONIO DATUIN and SUSAN DATUIN, petitioners,
vs.
HONORABLE JUDGE ERNANI C. PANO, Regional Trial Court,
Quezon City, Branch LXXXVIII, HONORABLE ClTY FISCAL OF
QUEZON CITY, respondents.
G.R. No. 74524-25 December 18, 1986
OSCAR VIOLAGO, petitioner,
vs.
HONORABLE JUDGE ERNANI C. PAÑ;O Regional Trial Court,
Quezon City, Branch LXXXVIII, HONORABLE CITY FISCAL OF
QUEZON CITY, respondents.
G.R. No. 75122-49 December 18, 1986
ELINOR ABAD, petitioner,
vs.
THE HONORABLE NICOLAS A. GEROCHI, JR., in his capacity
as Presiding Judge, Regional Trial Court, National Capital Judicial
Region, Branch 139, Makati and FEDERICO L. MELOCOTTON
JR., in his capacity as Trial Fiscal Regional Trial Court, Branch 139,
Makati, respondents.
G.R No. 75812-13 December 18, 1986
AMABLE R. AGUILUZ VII and SYLVIA V. AGUILUZ,
spouses, petitioners,
vs.
HONORABLE PRESIDING JUDGE OF BRANCH 154, now vacant
but temporarily presided by HONORABLE ASAALI S. ISNANI
Branch 153, Court of First Instance of Pasig, Metro
Manila, respondent.
G.R No. 75765-67 December 18, 1986
LUIS M. HOJAS, petitioner,
vs.
HON. JUDGE SENEN PENARANDA, Presiding Judge, Regional
Trial Court of Cagayan de Oro City, Branch XX, HONORABLE
JUDGE ALFREDO LAGAMON, Presiding Judge, Regional Trial
Court of Cagayan de Oro City, Branch XXII, HONORABLE CITY
FISCAL NOLI T. CATHI, City Fiscal of Cagayan de Oro
City, respondents.
G.R. No. 75789 December 18, 1986
THE PEOPLE OF THE PHILIPPINES, petitioner,
vs.
HON. DAVID G. NITAFAN, Presiding Judge, Regional Trial
Court, National Capital Judicial Region, Branch 52, Manila and
THELMA SARMIENTO, respondents.
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Loans in General – Articles 1933-1934, Art 1305; 1318
YAP, J.:
The constitutionality of Batas Pambansa Bilang 22 (BP 22 for short),
popularly known as the Bouncing Check Law, which was approved
on April 3, 1979, is the sole issue presented by these petitions for
decision. The question is definitely one of first impression in our
jurisdiction.
These petitions arose from cases involving prosecution of offenses
under the statute. The defendants in those cases moved seasonably
to quash the informations on the ground that the acts charged did
not constitute an offense, the statute being unconstitutional. The
motions were denied by the respondent trial courts, except in one
case, which is the subject of G. R. No. 75789, wherein the trial court
declared the law unconstitutional and dismissed the case. The
parties adversely affected have come to us for relief.
As a threshold issue the former Solicitor General in his comment on
the petitions, maintained the posture that it was premature for the
accused to elevate to this Court the orders denying their motions to
quash, these orders being interlocutory. While this is correct as a
general rule, we have in justifiable cases intervened to review the
lower court's denial of a motion to quash. 1 In view of the importance
of the issue involved here, there is no doubt in our mind that the
instant petitions should be entertained and the constitutional
challenge to BP 22 resolved promptly, one way or the other, in order
to put to rest the doubts and uncertainty that exist in legal and
judicial circles and the general public which have unnecessarily
caused a delay in the disposition of cases involving the enforcement
of the statute.
For the purpose of resolving the constitutional issue presented here,
we do not find it necessary to delve into the specifics of the
informations involved in the cases which are the subject of the
petitions before us. 2 The language of BP 22 is broad enough to cover
all kinds of checks, whether present dated or postdated, or whether
issued in payment of pre-existing obligations or given in mutual or
simultaneous exchange for something of value.
I
BP 22 punishes a person "who makes or draws and issues any check
on account or for value, knowing at the time of issue that he does not
have sufficient funds in or credit with the drawee bank for the
payment of said check in full upon presentment, which check is
subsequently dishonored by the drawee bank for insufficiency of
funds or credit or would have been dishonored for the same reason
had not the drawer, without any valid reason, ordered the bank to
stop payment." The penalty prescribed for the offense is
imprisonment of not less than 30 days nor more than one year or a
fine or not less than the amount of the check nor more than double
said amount, but in no case to exceed P200,000.00, or both such fine
and imprisonment at the discretion of the court. 3
The statute likewise imposes the same penalty on "any person who,
having sufficient funds in or credit with the drawee bank when he
makes or draws and issues a check, shall fail to keep sufficient funds
or to maintain a credit to cover the full amount of the check if
presented within a period of ninety (90) days from the date
appearing thereon, for which reason it is dishonored by the drawee
bank. 4
An essential element of the offense is "knowledge" on the part of the
maker or drawer of the check of the insufficiency of his funds in or
credit with the bank to cover the check upon its presentment. Since
this involves a state of mind difficult to establish, the statute itself
creates a prima facie presumption of such knowledge where payment
of the check "is refused by the drawee because of insufficient funds
in or credit with such bank when presented within ninety (90) days
from the date of the check. 5 To mitigate the harshness of the law in
its application, the statute provides that such presumption shall not
arise if within five (5) banking days from receipt of the notice of
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Loans in General – Articles 1933-1934, Art 1305; 1318
dishonor, the maker or drawer makes arrangements for payment of
the check by the bank or pays the holder the amount of the check.
Another provision of the statute, also in the nature of a rule of
evidence, provides that the introduction in evidence of the unpaid
and dishonored check with the drawee bank's refusal to pay
"stamped or written thereon or attached thereto, giving the reason
therefor, "shall constitute prima facie proof of "the making or issuance
of said check, and the due presentment to the drawee for payment
and the dishonor thereof ... for the reason written, stamped or
attached by the drawee on such dishonored check." 6
The presumptions being merely prima facie, it is open to the accused
of course to present proof to the contrary to overcome the said
presumptions.
II
BP 22 is aimed at putting a stop to or curbing the practice of issuing
checks that are worthless, i.e. checks that end up being rejected or
dishonored for payment. The practice, as discussed later, is
proscribed by the state because of the injury it causes to t public
interests.
Before the enactment of BP 22, provisions already existed in our
statute books which penalize the issuance of bouncing or rubber
checks. Criminal law has dealth with the problem within the context
of crimes against property punished as "estafa" or crimes involving
fraud and deceit. The focus of these penal provisions is on the
damage caused to the property rights of the victim.
The Penal Code of Spain, which was in force in the Philippines from
1887 until it was replaced by the Revised Penal Code in 1932,
contained provisions penalizing, among others, the act of defrauding
another through false pretenses. Art. 335 punished a person who
defrauded another "by falsely pretending to possess any power,
influence, qualification, property, credit, agency or business, or by
means of similar deceit." Although no explicit mention was made
therein regarding checks, this provision was deemed to cover within
its ambit the issuance of worthless or bogus checks in exchange for
money. 7
In 1926, an amendment was introduced by the Philippine
Legislature, which added a new clause (paragraph 10) to Article 335
of the old Penal Code, this time referring in explicit terms to the
issuance of worthless checks. The amendment penalized any person
who 1) issues a check in payment of a debt or for other valuable
consideration, knowing at the time of its issuance that he does not
have sufficient funds in the bank to cover its amount, or 2)
maliciously signs the check differently from his authentic signature
as registered at the bank in order that the latter would refuse to
honor it; or 3) issues a postdated check and, at the date set for its
payment, does not have sufficient deposit to cover the same. 8
In 1932, as already adverted to, the old Penal Code was superseded
by the Revised Penal Code. 9 The above provisions, in amended
form, were incorporated in Article 315 of the Revised Penal Code
defining the crime of estafa. The revised text of the provision read as
follows:
Art. 315. Swindling (estafa).—Any person who shall defraud
another by any of the means mentioned hereinbelow shall be
punished by:
xxx xxx xxx
2. By means of any of the following false pretenses or
fraudulent acts executed prior to or simultaneously with the
commis sion of the fraud:
(a) By using fictitious name, or falsely pretending to
possess power, influence, qualifications, property,
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Loans in General – Articles 1933-1934, Art 1305; 1318
credit, agency, business or imaginary transactions,
or by means of other similar deceits;
xxx xxx xxx
(d) By postdating a check, or issuing a check in
payment of an obligation the offender knowing that
at the time he had no funds in the bank, or the funds
deposited by him were not sufficient to cover the
amount of the cheek without informing the payee of
such circumstances.
The scope of paragraph 2 (d), however, was deemed to exclude
checks issued in payment of pre-existing obligations. 10 The rationale
of this interpretation is that in estafa, the deceit causing the
defraudation must be prior to or simultaneous with the commission of
the fraud. In issuing a check as payment for a pre-existing debt, the
drawer does not derive any material benefit in return or as
consideration for its issuance. On the part of the payee, he had
already parted with his money or property before the check is issued
to him hence, he is not defrauded by means of any "prior" or
"simultaneous" deceit perpetrated on him by the drawer of the
check.
With the intention of remedying the situation and solving the
problem of how to bring checks issued in payment of pre-existing
debts within the ambit of Art. 315, an amendment was introduced by
the Congress of the Philippines in 1967, 11 which was enacted into
law as Republic Act No. 4885, revising the aforesaid proviso to read
as follows:
(d) By postdating a check, or issuing a check in payment of
an obligation when the offender had no funds in the bank, or
his funds deposited therein were not sufficient to cover the
amount of the check. The failure of the drawer of the check
to deposit the amount necessary to cover his check within
three (3) days from receipt of notice from the bank and/or
the payee or holder that said check has been dishonored for
lack or insufficiency of funds shall be puma facie evidence of
deceit constituting false pretense or fraudulent act.
However, the adoption of the amendment did not alter the situation
materially. A divided Court held in People vs. Sabio, Jr. 12 that Article
315, as amended by Republic Act 4885, does not cover checks issued
in payment of pre-existing obligations, again relying on the concept
underlying the crime of estafa through false pretenses or deceit—
which is, that the deceit or false pretense must be prior to or
simultaneous with the commission of the fraud.
Since statistically it had been shown that the greater bulk of
dishonored checks consisted of those issued in payment of pre-
existing debts, 13 the amended provision evidently failed to cope
with the real problem and to deal effectively with the evil that it was
intended to eliminate or minimize.
With the foregoing factual and legal antecedents as a backdrop, the
then Interim Batasan confronted the problem squarely. It opted to
take a bold step and decided to enact a law dealing with the problem
of bouncing or worthless checks, without attaching the law's
umbilical cord to the existing penal provisions on estafa. BP 22
addresses the problem directly and frontally and makes the act of
issuing a worthless check malum prohibitum. 14
The question now arises: Is B P 22 a valid law?
Previous efforts to deal with the problem of bouncing checks within
the ambit of the law on estafa did not evoke any constitutional
challenge. In contrast, BP 22 was challenged promptly.
Those who question the constitutionality of BP 22 insist that: (1) it
offends the constitutional provision forbidding imprisonment for
debt; (2) it impairs freedom of contract; (3) it contravenes the equal
protection clause; (4) it unduly delegates legislative and executive
71
Loans in General – Articles 1933-1934, Art 1305; 1318
powers; and (5) its enactment is flawed in that during its passage the
Interim Batasan violated the constitutional provision prohibiting
amendments to a bill on Third Reading.
The constitutional challenge to BP 22 posed by petitioners deserves a
searching and thorough scrutiny and the most deliberate
consideration by the Court, involving as it does the exercise of what
has been described as "the highest and most delicate function which
belongs to the judicial department of the government." 15
As we enter upon the task of passing on the validity of an act of a co-
equal and coordinate branch of the government, we need not be
reminded of the time-honored principle, deeply ingrained in our
jurisprudence, that a statute is presumed to be valid. Every
presumption must be indulged in favor of its constitutionality. This
is not to say that we approach our task with diffidence or timidity.
Where it is clear that the legislature has overstepped the limits of its
authority under the constitution we should not hesitate to wield the
axe and let it fall heavily, as fall it must, on the offending statute.
III
Among the constitutional objections raised against BP 22, the most
serious is the alleged conflict between the statute and the
constitutional provision forbidding imprisonment for debt. It is
contended that the statute runs counter to the inhibition in the Bill of
Rights which states, "No person shall be imprisoned for debt or non-
payment of a poll tax." 16 Petitioners insist that, since the offense
under BP 22 is consummated only upon the dishonor or non-
payment of the check when it is presented to the drawee bank, the
statute is really a "bad debt law" rather than a "bad check law." What
it punishes is the non-payment of the check, not the act of issuing it.
The statute, it is claimed, is nothing more than a veiled device to
coerce payment of a debt under the threat of penal sanction.
First of all it is essential to grasp the essence and scope of the
constitutional inhibition invoked by petitioners. Viewed in its
historical context, the constitutional prohibition against
imprisonment for debt is a safeguard that evolved gradually during
the early part of the nineteenth century in the various states of the
American Union as a result of the people's revulsion at the cruel and
inhumane practice, sanctioned by common law, which permitted
creditors to cause the incarceration of debtors who could not pay
their debts. At common law, money judgments arising from actions
for the recovery of a debt or for damages from breach of a contract
could be enforced against the person or body of the debtor by writ of
capias ad satisfaciendum. By means of this writ, a debtor could be
seized and imprisoned at the instance of the creditor until he makes
the satisfaction awarded. As a consequence of the popular ground
swell against such a barbarous practice, provisions forbidding
imprisonment for debt came to be generally enshrined in the
constitutions of various states of the Union. 17
This humanitarian provision was transported to our shores by the
Americans at the turn of t0he century and embodied in our organic
laws. 18 Later, our fundamental law outlawed not only imprisonment
for debt, but also the infamous practice, native to our shore, of
throwing people in jail for non-payment of the cedula or poll tax. 19
The reach and scope of this constitutional safeguard have been the
subject of judicial definition, both by our Supreme Court 20 and by
American State courts.21 Mr. Justice Malcolm speaking for
the Supreme Court in Ganaway vs. Queen, 22 stated: "The 'debt'
intended to be covered by the constitutional guaranty has a well-
defined meaning. Organic provisions relieving from imprisonment
for debt, were intended to prevent commitment of debtors to prison
for liabilities arising from actions ex contractu The inhibition was
never meant to include damages arising in actions ex delicto, for the
reason that damages recoverable therein do not arise from any
contract entered into between the parties but are imposed upon the
defendant for the wrong he has done and are considered as
punishment, nor to fines and penalties imposed by the courts in
criminal proceedings as punishments for crime."
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Loans in General – Articles 1933-1934, Art 1305; 1318
The law involved in Ganaway was not a criminal statute but the
Code of Procedure in Civil Actions (1909) which authorized the
arrest of the defendant in a civil case on grounds akin to those which
justify the issuance of a writ of attachment under our present Rules
of Court, such as imminent departure of the defendant from the
Philippines with intent to defraud his creditors, or concealment,
removal or disposition of properties in fraud of creditors, etc. The
Court, in that case, declared the detention of the defendant unlawful,
being violative of the constitutional inhibition against imprisonment
for debt, and ordered his release. The Court, however, refrained
from declaring the statutory provision in question unconstitutional.
Closer to the case at bar is People v. Vera
Reyes,23wherein a statutory
provision which made illegal and punishable the refusal of an
employer to pay, when he can do so, the salaries of his employees or
laborers on the fifteenth or last day of every month or on Saturday
every week, was challenged for being violative of the constitutional
prohibition against imprisonment for debt. The constitutionality of
the law in question was upheld by the Court, it being within the
authority of the legislature to enact such a law in the exercise of the
police power. It was held that "one of the purposes of the law is to
suppress possible abuses on the part of the employers who hire
laborers or employees without paying them the salaries agreed upon
for their services, thus causing them financial difficulties. "The law
was viewed not as a measure to coerce payment of an obligation,
although obviously such could be its effect, but to banish a practice
considered harmful to public welfare.
IV
Has BP 22 transgressed the constitutional inhibition against
imprisonment for debt? To answer the question, it is necessary to
examine what the statute prohibits and punishes as an offense. Is it
the failure of the maker of the check to pay a debt? Or is it the
making and issuance of a worthless check in payment of a debt?
What is the gravamen of the offense? This question lies at the heart
of the issue before us.
The gravamen of the offense punished by BP 22 is the act of making
and issuing a worthless check or a check that is dishonored upon its
presentation for payment. It is not the non-payment of an obligation
which the law punishes. The law is not intended or designed to
coerce a debtor to pay his debt. The thrust of the law is to prohibit,
under pain of penal sanctions, the making of worthless checks and
putting them in circulation. Because of its deleterious effects on the
public interest, the practice is proscribed by the law. The law
punishes the act not as an offense against property, but an offense
against public order.
Admittedly, the distinction may seem at first blush to appear elusive
and difficult to conceptualize. But precisely in the failure to perceive
the vital distinction lies the error of those who challenge the validity
of BP 22.
It may be constitutionally impermissible for the legislature to
penalize a person for non-payment of a debt ex contractu But
certainly it is within the prerogative of the lawmaking body to
proscribe certain acts deemed pernicious and inimical to public
welfare. Acts mala in se are not the only acts which the law can
punish. An act may not be considered by society as inherently
wrong, hence, not malum in se but because of the harm that it inflicts
on the community, it can be outlawed and criminally punished
as malum prohibitum. The state can do this in the exercise of its police
power.
The police power of the state has been described as "the most
essential, insistent and illimitable of powers" which enables it to
prohibit all things hurtful to the comfort, safety and welfare of
society. 24 It is a power not emanating from or conferred by the
constitution, but inherent in the state, plenary, "suitably vague and
far from precisely defined, rooted in the conception that man in
organizing the state and imposing upon the government limitations
to safeguard constitutional rights did not intend thereby to enable
individual citizens or group of citizens to obstruct unreasonably the
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Loans in General – Articles 1933-1934, Art 1305; 1318
enactment of such salutary measures to ensure communal peace,
safety, good order and welfare." 25
The enactment of BP 22 is a declaration by the legislature that, as a
matter of public policy, the making and issuance of a worthless
check is deemed public nuisance to be abated by the imposition of
penal sanctions.
It is not for us to question the wisdom or impolicy of the statute. It is
sufficient that a reasonable nexus exists between means and end.
Considering the factual and legal antecedents that led to the
adoption of the statute, it is not difficult to understand the public
concern which prompted its enactment. It had been reported that the
approximate value of bouncing checks per day was close to 200
million pesos, and thereafter when overdrafts were banned by the
Central Bank, it averaged between 50 minion to 80 million pesos a
day. 26
By definition, a check is a bill of exchange drawn on a bank and
payable on demand. 27 It is a written order on a bank, purporting to
be drawn against a deposit of funds for the payment of all events, of
a sum of money to a certain person therein named or to his order or
to cash and payable on demand. 28 Unlike a promissory note, a check
is not a mere undertaking to pay an amount of money. It is an order
addressed to a bank and partakes of a representation that the drawer
has funds on deposit against which the check is drawn, sufficient to
ensure payment upon its presentation to the bank. There is therefore
an element of certainty or assurance that the instrument wig be paid
upon presentation. For this reason, checks have become widely
accepted as a medium of payment in trade and commerce. Although
not legal tender, checks have come to be perceived as convenient
substitutes for currency in commercial and financial transactions.
The basis or foundation of such perception is confidence. If such
confidence is shakes the usefulness of checks as currency substitutes
would be greatly diminished or may become nit Any practice
therefore tending to destroy that confidence should be deterred for
the proliferation of worthless checks can only create havoc in trade
circles and the banking community.
Recent statistics of the Central Bank show that one-third of the entire
money supply of the country, roughly totalling P32.3 billion, consists
of peso demand deposits; the remaining two. 29 These de deposit
thirds consists of currency in circulation. ma deposits in the banks
constitute the funds against which among others, commercial papers
like checks, are drawn. The magnitude of the amount involved
amply justifies the legitimate concern of the state in preserving the
integrity of the banking system. Flooding the system with worthless
checks is like pouring garbage into the bloodstream of the nation's
economy.
The effects of the issuance of a worthless check transcends the
private interests of the parties directly involved in the transaction
and touches the interests of the community at large. The mischief it
creates is not only a wrong to the payee or holder, but also an injury
to the public. The harmful practice of putting valueless commercial
papers in circulation, multiplied a thousand fold, can very wen
pollute the channels of trade and commerce, injure the banking
system and eventually hurt the welfare of society and the public
interest. As aptly stated — 30
The 'check flasher' does a great deal more than contract a
debt; he shakes the pillars of business; and to my mind, it is
a mistaken charity of judgment to place him in the same
category with the honest man who is unable to pay his
debts, and for whom the constitutional inhibition against'
imprisonment for debt, except in cases of fraud was
intended as a shield and not a sword.
In sum, we find the enactment of BP 22 a valid exercise of the police
power and is not repugnant to the constitutional inhibition against
imprisonment for debt.
74
Loans in General – Articles 1933-1934, Art 1305; 1318
This Court is not unaware of the conflicting jurisprudence obtaining
in the various states of the United States on the constitutionality of
the "worthless check" acts. 31 It is needless to warn that foreign
jurisprudence must be taken with abundant caution. A caveat to be
observed is that substantial differences exist between our statute and
the worthless check acts of those states where the jurisprudence have
evolved. One thing to remember is that BP 22 was not lifted bodily
from any existing statute. Furthermore, we have to consider that
judicial decisions must be read in the context of the facts and the law
involved and, in a broader sense, of the social economic and political
environment—in short, the milieu—under which they were made.
We recognize the wisdom of the old saying that what is sauce for the
goose may not be sauce for the gander.
As stated elsewhere, police power is a dynamic force that enables the
state to meet the exigencies of changing times. There are occasions
when the police power of the state may even override a
constitutional guaranty. For example, there have been cases wherein
we held that the constitutional provision on non-impairment of
contracts must yield to the police power of the state. 32 Whether the
police power may override the constitutional inhibition against
imprisonment for debt is an issue we do not have to address. This
bridge has not been reached, so there is no occasion to cross it.
We hold that BP 22 does not conflict with the constitutional
inhibition against imprisonment for debt.
V laws. 35 which means, as applied to the present case, the power to
We need not detain ourselves lengthily in the examination of the
other constitutional objections raised by petitioners, some of which
are rather flimsy.
We find no valid ground to sustain the contention that BP 22 impairs
freedom of contract. The freedom of contract which is
constitutionally protected is freedom to enter into "lawful" contracts.
Contracts which contravene public policy are not lawful. 33 Besides,
we must bear in mind that checks can not be categorized as mere
contracts. It is a commercial instrument which, in this modem day
and age, has become a convenient substitute for money; it forms part
of the banking system and therefore not entirely free from the
regulatory power of the state.
Neither do we find substance in the claim that the statute in question
denies equal protection of the laws or is discriminatory, since it
penalizes the drawer of the check, but not the payee. It is contended
that the payee is just as responsible for the crime as the drawer of the
check, since without the indispensable participation of the payee by
his acceptance of the check there would be no crime. This argument
is tantamount to saying that, to give equal protection, the law should
punish both the swindler and the swindled. The petitioners' posture
ignores the well-accepted meaning of the clause "equal protection of
the laws." The clause does not preclude classification of individuals,
who may be accorded different treatment under the law as long as
the classification is no unreasonable or arbitrary. 34
It is also suggested that BP 22 constitutes undue or improper
delegation of legislative powers, on the theory that the offense is not
completed by the sole act of the maker or drawer but is made to
depend on the will of the payee. If the payee does not present the
check to the bank for payment but instead keeps it, there would be
no crime. The logic of the argument stretches to absurdity the
meaning of "delegation of legislative power." What cannot be
delegated is the power to legislate, or the power to make
define the offense sought to be punished and to prescribe the
penalty. By no stretch of logic or imagination can it be said that the
power to define the crime and prescribe the penalty therefor has
been in any manner delegated to the payee. Neither is there any
provision in the statute that can be construed, no matter how
remotely, as undue delegation of executive power. The suggestion
that the statute unlawfully delegates its enforcement to the offended
party is farfetched.
75
Loans in General – Articles 1933-1934, Art 1305; 1318
Lastly, the objection has been raised that Section 9 (2) of Article VII
of the 1973 Constitution was violated by the legislative body when it
enacted BP 22 into law. This constitutional provision prohibits the
introduction of amendments to a bill during the Third Reading. It is
claimed that during its Third Reading, the bill which eventually
became BP 22 was amended in that the text of the second paragraph
of Section 1 of the bill as adopted on Second Reading was altered or
changed in the printed text of the bill submitted for approval on
Third Reading.
A careful review of the record of the proceedings of the Interim
Batasan on this matter shows that, indeed, there was some confusion
among Batasan Members on what was the exact text of the
paragraph in question which the body approved on Second
Reading. 36 Part of the confusion was due apparently to the fact that
during the deliberations on Second Reading (the amendment
period), amendments were proposed orally and approved by the
body or accepted by the sponsor, hence, some members might not
have gotten the complete text of the provisions of the bill as
amended and approved on Second Reading. However, it is clear
from the records that the text of the second paragraph of Section 1 of
BP 22 is the text which was actually approved by the body on Second
Reading on February 7, 1979, as reflected in the approved Minutes
for that day. In any event, before the bin was submitted for final
approval on Third Reading, the Interim Batasan created a Special
Committee to investigate the matter, and the Committee in its report,
which was approved by the entire body on March 22, 1979, stated
that "the clause in question was ... an authorized amendment of the
bill and the printed copy thereof reflects accurately the provision in
question as approved on Second Reading. 37 We therefore, find no
merit in the petitioners' claim that in the enactment of BP 22 the
provisions of Section 9 (2) of Article VIII of the 1973 Constitution
were violated.
WHEREFORE, judgment is rendered granting the petition in G.R.
No. 75789 and setting aside the order of the respondent Judge dated
August 19, 1986. The petitions in G.R. Nos. 63419, 66839-42, 71654,
74524-25, 75122-49, 75812-13 and 75765-67 are hereby dismissed and
the temporary restraining order issued in G.R. Nos. 74524-25 is
lifted. With costs against private petitioners.
SO ORDERED.
FACTS
Petitioners, charged with Batas Pambansa Bilang 22 (BP 22 for short),
popularly known as the Bouncing Check Law, assail the law's
constitutionality.
BP 22 punishes a person "who makes or draws and issues any check
on account or for value, knowing at the time of issue that he does not
have sufficient funds in or credit with the draweebank for the
payment of said check in full upon presentment, which check is
subsequently dishonored by the drawee bank for insufficiency of
funds or credit or would have been dishonored for the same reason
had not the drawer, without any valid reason, ordered the bank to
stop payment." The penalty prescribed for the offense is
imprisonment of not less than 30 days nor more than one year or a
fine or not less than the amount of the check nor more than double
said amount, but in no case to exceed P200,000.00, or both such fine
and imprisonment at the discretion of the court.
The statute likewise imposes the same penalty on "any person who,
having sufficient funds in or credit with the drawee bank when he
makes or draws and issues a check, shall fail to keep sufficient funds
or to maintain a credit to cover the full amount of the check if
presented within a period of ninety (90) days from the date
appearing thereon, for which reason it is dishonored by
the drawee bank.
An essential element of the offense is "knowledge" on the part of the
maker or drawer of the check of the insufficiency of his funds in or
credit with the bank to cover the check upon its presentment. Since
this involves a state of mind difficult to establish, the statute itself
76
Loans in General – Articles 1933-1934, Art 1305; 1318
creates a prima facie presumption of such knowledge where
payment of the check "is refused by the drawee because of
insufficient funds in or credit with such bank when presented within
ninety (90) days from the date of the check. To mitigate the
harshness of the law in its application, the statute provides that such
presumption shall not arise if within five (5) banking days from
receipt of the notice of dishonor, the maker or drawer makes
arrangements for payment of the check by the bank or pays the
holder the amount of the check.
Another provision of the statute, also in the nature of a rule of
evidence, provides that the introduction in evidence of the unpaid
and dishonored check with the drawee bank's refusal to pay
"stamped or written thereon or attached thereto, giving the reason
therefor, "shall constitute prima facie proof of "the making or
issuance of said check, and the due presentment to the drawee for
payment and the dishonor thereof ... for the reason written, stamped
or attached by the drawee on such dishonored check."
The presumptions being merely prima facie, it is open to the accused
of course to present proof to the contrary to overcome the said
presumptions.
ISSUE: Whether or not (W/N) BP 22 violates the constitutional
provision forbidding imprisonment for debt.
HELD: No.
The gravamen of the offense punished by BP 22 is the act of making
and issuing a worthless check or a check that is dishonored upon its
presentation for payment. It is not the non-payment of an obligation
which the law punishes. The law is not intended or designed to
coerce a debtor to pay his debt. The thrust of the law is to prohibit,
under pain of penal sanctions, the making of worthless checks and
putting them in circulation. Because of its deleterious effects on the
public interest, the practice is proscribed by the law. The law
punishes the act not as an offense against property, but an offense
against public order.
The effects of the issuance of a worthless check transcends the
private interests of the parties directly involved in the transaction
and touches the interests of the community at large. The mischief it
creates is not only a wrong to the payee or holder, but also an injury
to the public. The harmful practice of putting valueless commercial
papers in circulation, multiplied a thousand fold, can very wen
pollute the channels of trade and commerce, injure the banking
system and eventually hurt the welfare of society and the public
interest.
The enactment of BP 22 is a declaration by the legislature that, as a
matter of public policy, the making and issuance of a worthless
check is deemed public nuisance to be abated by the imposition of
penal sanctions.
ISSUE: W/N BP 22 impairs the freedom to contract.
HELD: No. The freedom of contract which is constitutionally
protected is freedom to enter into "lawful" contracts. Contracts which
contravene public policy are not lawful. Besides, we must bear in
mind that checks can not be categorized as mere contracts. It is a
commercial instrument which, in this modem day and age, has
become a convenient substitute for money; it forms part of the
banking system and therefore not entirely free from the regulatory
power of the state.
ISSUE: W/N it violates the equal protection clause.
HELD: No. Petitioners contend that the payee is just as responsible
for the crime as the drawer of the check, since without the
indispensable participation of the payee by his acceptance of the
check there would be no crime. This argument is tantamount to
saying that, to give equal protection, the law should punish both the
swindler and the swindled. Moreover, the clause does not preclude
classification of individuals, who may be accorded different
treatment under the law as long as the classification is no
unreasonable or arbitrary.
77
Loans in General – Articles 1933-1934, Art 1305; 1318
G.R. No. 122539 March 4, 1999
JESUS V. TIOMICO, petitioner,
vs.
THE HON. COURT OF APPEALS (FORMER FIFTH DIVISION)
and PEOPLE OF THE PHILIPPINES, respondent.
PURISIMA, J.:
This is a petition for review by certiorari under Section 2, Rule 125, in
relation to Section 1, Rule 45 of the Rules of Court to correct, reverse
and annul the decision 1 of the Court of Appeals which affirmed the
judgment 2 of the trial court convicting the petitioner herein for a
violation of the Trust Receipts Law.
Petitioner Jesus V. Tiomico, (Tiomico) opened a Letter of Credit with
the Bank of the Philippine Islands (BPI) for $5,600 to be used for the
importation of two (2) units of Forklifts, Shovel loader and a truck
mounted with crane. On October 29, 1982, the said machineries were
received by the accused, as evidenced by the covering trust receipt.
Upon maturity of the trust receipt, on December 28, 1982, he made a
partial payment of US$855.94, thereby leaving an unpaid obligation
of US$4,770.46. As of December 21, 1989, Tiomico owed BPI
US$4,770.46, or P109,386.65, computed at P22.93 per US dollar, the
rate of exchange at the time. Failing to pay the said amount or to
deliver subject machineries and equipments, despite several
demands, the International Operations Department of BPI referred
the matter to the Legal Department of the bank. But the letter of
demand sent to him notwithstanding, Tiomico failed to satisfy his
monetary obligation sued upon.
Consequently, he was accused of a violation of PD 115, otherwise
known as the Trust Receipts Law, under an Information 3 alleging:
That on or about the 29th day of October, 1982, in
the Municipality of Makati, Metro, Manila,
Philippines, and within the jurisdiction of this
Honorable Court, the above-named accused,
executed a Trust Receipt Agreement for and in
behalf of Paramount Calibrators Merchandising of
which he is the sole proprietor in favor of the Bank
of the Philippine Islands. In consideration of the
receipt by the said accused of three (3) bares one
unit Forklift Model FD-30 Toyota Branch 2-J70 Hp
and one unit Forklift Model LM-301 Toyota Branch
2-J 70 Hp and one unit shovel loader Model SOT 130
HP, 6 Cyl-LC #2-16860, for which there is now due
the sum of US$5600.00, wherein the accused agreed
to sell the same and with the express obligation to
remit to the complainant-bank the proceeds of the
sale, and/or to turn over the same if not sold, on
demand, but the accused once in possession of the
said items, far from complying with his obligation,
with unfaithfulness and abuse of confidence, did
then and there wilfully, unlawfully and feloniously
misappropriate, misapply and convert the same to
his own personal use and benefit despite repeated
demands, failed and refused and still fails and
refuses account for and/or remit the proceeds of the
sale thereof, to the damage and prejudice of the said
complainant-bank as represented by Lourdes V.
Palomo in the aforementioned amount of US $5600
or its equivalent in Philippine currency.
Contrary to law.
Arraigned thereunder, Tiomico entered a plea of Not Guilty, at
which juncture, Assistant Provincial Prosecutor John B. Egana
manisfested that he was authorizing the private prosecutor, Atty.
Jose B. Soncuya, to prosecute the case subject to his direction,
supervision and control.
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Loans in General – Articles 1933-1934, Art 1305; 1318
On October 16, 1989, Gretel S. Donato was presented to testify for the
prosecution. According to her, she worked for the Bank of the
Philippine Islands (BPI) in 1981 and in 1982, she was assigned as one
of the Letter of Credit processors in the International Operations
Department of BPI. Her duty, among others, was to process letter of
credit applications which included that of Tiomico. The trust receipt
executed by the latter was given to her as part of the documents
supporting his Letter of Credit.
The following documents presented in the course of the testimony of
Donato were identified by her as follows:
(1) Exhibit "A" — Letter of Credit;
(2) Exhibit "B" — Pro Forma Invoice;
(3) Exhibit "C" — Letter of Credit Confirmation;
(4) Exhibit "D" — Trust Receipt;
Exhibit D1-D4 — signatures
thereon;
(5) Exhibit "E" — Statement of
Account, the amount of P306,708.17
appearing therein, as Exhibit E-1,
and the signature thereto of an
unidentified bank officer, as Exhibit
E-2;
(6) Exhibit "F" — Letter of Demand
of the bank's legal department; a
return card, as Exhibit F-1, and the
signature of the addressee's agent,
as Exhibit F-1 A.
Counsel for petitioner objected to the admission of Exhibits "A", "B",
"C" and "D" on the ground that witness failed to identify the said
documents inasmuch as her testimony regarding the signatures
appearing therein were evidently hearsay. But the trial court
admitted the said documentary evidence, despite the objections
raised thereto by the defense. Thereafter, the prosecution rested.
After the People rested its case, petitioner begged leave to file a
demurrer to the evidence, theorizing that the evidence on record
does not suffice to prove beyond reasonable doubt the accusation
against him. But instead of granting the said motion of the defense,
the trial court ordered a re-opening of the case, so as to enable the
prosecution to adduce more evidence. The defense objected but to no
avail. The trial court proceeded with the continuation of trial "in the
interest of justice".
On September 5, 1990, the-lower court denied the demurrer to
evidence. The Motion for Reconsideration of the defense met the
same fate. It was denied. The case was then set for continuation of
trial on December 12, 1990. Reception of evidence for the defense
was set on January 7, 1991. But on January 4, 1991, three days before
the scheduled continuation of trial, the defense counsel filed an
Urgent Motion for Postponement for the given reason that he had to
appear before Branch 12 of the Metropolitan Trial Court of Manila
on January 7, 1991.
On January 7, 1991, the lower court denied the Urgent Motion for
Postponement and adjudged petitioner to have waived the right to
introduce evidence on his behalf.
On January 30, 1991, the trial court promulgated its decision finding
petitioner guilty of a violation of PD 115, and sentencing him
accordingly.
On appeal, the Court of Appeals came out with a judgment of
affirmance, the dispositive portion which, is to the following effect:
79
Loans in General – Articles 1933-1934, Art 1305; 1318
WHEREFORE, the Court finds JESUS V. TIOMICO
guilty beyond reasonable doubt of violation of PD
115 and is hereby sentenced to suffer an
indeterminate penalty of ten (10) years of prision
mayor as minimum, to fifteen (15) years of reclusion
temporal as maximum; to indemnify Bank of the
Philippine Islands the sum of P109,386.65 and to pay
the costs.
SO ORDERED. 4
Undaunted, petitioner found his way to this Court via the Petition
for Review by Certiorari at bar, seeking to annul the decision 5 of the
Court of Appeals; raising as issues:
(1) WHETHER OR NOT PD 115 OR
TRUST RECEIPTS LAW IS
UNCONSTITUTIONAL;
(2) WHETHER OR NOT A
TESTIMONY CAN BE ADMITTED
DESPITE THE ABSENCE OF
FORMAL OFFER AS REQUIRED
BY SECTIONS 34 AND 35, RULE
132, OF THE REVISED RULES OF
COURT;
(3) WHETHER OR NOT THE
TESTIMONY OF WITNESS WITH
REGARD TO THE LETTER OF
CREDIT AND OTHER
DOCUMENT IS HEARSAY AND;
(4) WHETHER OR NOT THERE
WAS DEPRIVATION OF DUE
PROCESS ON THE RIGHTS OF
THE ACCUSED WHEN THE
TRIAL COURT DENIED THE
MOTION FOR POSTPONEMENT
BY THE DEFENSE COUNSEL.
As regards the first issue, the Court has repeatedly upheld the
validity of the Trust Receipts Law and consistently declared that the
said law does not violate the constitutional proscription againts
imprisonment for non-payment of debts. (People vs. Cuevo, 104
SCRA 312; People vs. Nitafan, 207 SCRA 726; Lee vs. Rodil, 175
SCRA 100). Such pronouncement was thoroughly explained in Lee
vs. Rodil (supra) thus:
Verily, PD 115 is a declaration by the legislative
authority that, as a matter of public policy, the
failure of a person to turn over the proceeds of the
sale of goods covered by a trust receipt or to return
said goods if not sold is a public nuisance to be
abated by the imposition of penal sanctions. As held
in Lozano vs. Martinez (146 SCRA 323, 338):
. . . certainly, it is within the
authority of the lawmaking body to
prescribe certain act deemed
pernicious and inimical to public
welfare. Acts mala in se are not the
only acts that the law can punish.
An act may not be considered by
society as inherently wrong, hence,
not malum in se, but because of the
harm that it inflicts on the
community, it can be outlawed and
criminally punished as malum
prohibitum. The State can do this in
the exercise of its police power.
80
Loans in General – Articles 1933-1934, Art 1305; 1318
In fine, PD 115 is a valid exercise of police power
and is not repugnant to the constitutional provision
of non-imprisonment for non-payment of debt.
In a similar vein, the case of People vs. Nitafan (supra) held:
The Trust Receipts Law punishes
the dishonesty and abuse of
confidence in the handling of
money or goods to the prejudice of
another regardless of whether the
latter is the owner or not. The law
does not seek to enforce payment of
a loan. Thus, there can be no
violation of the right against
imprisonment for non-payment of a
debt.
Anent the second issue, the pivotal question is: Should the testimony
of a witness be admitted despite the failure of the proponent to offer
it formally in evidence, as required by Section 34 of Rule 132 6? We
rule on this issue in the affirmative.
Records disclose that the private prosecutor stated the purpose of the
testimony in question although he did not formally offer the same.
The proceedings 7 went on as follows:
ATTY. SONCUYA:
The purpose of the testimony of the witness is to
prove that the accused applied for a letter of credit,
for the opening of a letter of credit and for the
importation of machinery from Japan and that those
machinery were delivered and received by the
accused as evidenced by the trust receipt and that
the accused failed to comply with the terms and
conditions of the said trust receipt, your Honor.
COURT:
All right, proceed.
As aptly stressed by the Solicitor General in his Comment, 8 "the
absence of the words, 'we are formally offering the testimony for the
purpose of . . .'" should be considered merely as an excusable
oversight on the part of the private prosecutor.
It should be borne in mind that the rationale behind Section 34 of
Rule 132 9 is to inform the Court of the purpose of the testimony, to
enable the judge to rule whether the said testimony is necessary or is
irrelevant or immaterial.
In the case under scrutiny, since the purpose of subject testimony
was succinctly stated, the reason behind the requirement for its
formal offer has been substantially complied with. What the defense
counsel should have done should have been to interpose his
objection the moment the private respondent was called to testify, on
the ground that there was no prior offer made by the proponent. 10
The tendency of the rules on evidence, is towards substantial justice
rather than strict adherence to technicalities. To condemn the
disputed testimony as inadmissible due to the failure of the private
prosecutor to properly observe the rules on presentation of evidence,
would render nugatory, and defeat the proceedings before the lower
court.
On the third issue — whether or not the witness can testify on
subject documents introduced as evidence despite her admission
that she did not see the accused sign the said exhibits, we likewise
rule in the affirmative.
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Loans in General – Articles 1933-1934, Art 1305; 1318
As aptly held by the appellate court: 11
Gretel Donato testified that she was not present
when appellant affixed his signature on the
documents in question (p. 22 ibid). She, however,
identified the signatures thereon (Exhs. "A-1", "A-2",
"D-1", "D-2" and "D-3", Letter of Credit; Exhibit B —
Pro Forma Invoice; Exhibit C — Letter of Credit
Confirmation; Exhibit D-Trust Receipt; Exhibit D1-
D4 — signatures thereon; pp. 129 and 132 of Orig.
Rec.) as those of the appellant Jesus V. Tiomico
arising from her familiarity therewith inasmuch as
she was the one who processed the papers pertinent
to the transactions between the appellant and the
complainant bank (TSN, Feb. 5, 1990, pp 4-6). Her
testimony, therefore, cannot be considered hearsay
because it is principally based on her personal
knowledge of bank transactions and the documents
and records which she processes in the regular
course of the bank's business operations.
It is not essential to the competence of a lay witness to express
opinions on the genuineness of handwritings that he did see the
person in question
write.12 It is enough that the witness has so adopted the same into
business transactions as to induce a reasonable presumption and
belief of genuineness of the document. This is due to the fact that in
the ordinary course of business, documents purporting to be written
or signed by that person have been habitually submitted to the
witness, or where knowledge of handwriting is acquired by him in
an official capacity. 13
Did the witness gain familiarity with the signature of the accused?
The answer is yes. Exhibits "A" to "D": Letter of Credit, Pro-
Forma Invoice, Letter of Credit Confirmation and Trust Receipt,
respectively, were all familiar to the witness since the said
documents bearing the signature of the accused were all submitted
to her for processing. It is therefore beyond cavil that she acquired
sufficient familiarity to make witness competent to testify on the
signatures appearing in subject documents. From the time of the
application to its approval and when Tiomico defaulted, she
(witness) was the one who had overseen the transactions and
recommended the actions to be taken thereon. As a matter of fact,
she was the one who referred the failure of Tiomico to pay his
balance to Tiomico to pay his balance to the Legal Department of
BPI, prompting the said legal department to send him (Tiomico) a
demand letter.
Furthermore, whether there was due execution or authencity of such
documents was impliedly admitted by the accused. On this point,
we quote with approval the conclusion reached by the Court of
Appeals, to wit: 14
On the other hand, appellant impliedly admitted the
due execution of the assailed documents considering
that he did not deny the fact that he opened a letter
of credit. Neither did he deny that the signature
appearing thereon is his. What appellant intended to
dispute was merely the balance of his past due
account with the complainant bank, thus:
COURT
Denied.
What is the defense of the accused?
Denial that he opened the letter of
credit.
ATTY. EBRO
No, you honor.
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Loans in General – Articles 1933-1934, Art 1305; 1318

COURT: What is the defense? ATTY. EBRO

xxx xxx xxx No, your Honor. I am just showing

ATTY. EBRO.
Q: — Now you identified signatures
allegedly of the accused on Exhibit
A, which is the application for the
letter of credit, I ask you Miss
Donato, were you personally
present when this signature was
affixed to the document?
A: — (witness going over Exhibit A)
I was the one of the ones who
processed the letter of credit.
ATTY. EBRO
May we ask for an order directing
that the witness respond to my
question.
COURT
Just answer the question.
WITNESS
A: — No, sir.
COURT
also that she has been exaggerating.
(TSN, Feb. 5, 1990, pp. 12-13, p. 22)
In light of the foregoing, it stands to reason and conclude that the
documents under scrutiny are admissible in evidence, as held by the
trial court.
Anent the fourth issue, petitioner theorizes that the denial of the
motion for postponement sent in by his lawyer violated his
constitutional right to due process.
It should be stressed that subject Urgent Motion for Postponement
was not the first motion for resetting ever presented by the counsel
for petitioner. On December 12, 1990, upon motion of the latter, and
without objection on the part of the prosecution, the reception of
evidence for the defense was reset once more to January 7, 1991, at
8:30 in the morning.
The most basic tenet of due process is the right to be heard. Where a
party had been afforded an opportunity to participate in the
proceedings but failed to do so, he cannot complain of deprivation of
due process. 15 Due process is satisfied as long as the party is
accorded an opportunity to be heard. If it is not availed of, it is
deemed waived or forfeited without violating the Bill of Rights. 16
It is further theorized by petitioner that the lower court should have
at least granted him another trial date so as to enable him to present
his evidence, so that the denial of his Urgent Motion for
Postponement infringed his constitutional right to be heard by
himself and by counsel. 17 This submission is unsustainable.

Does the accused deny the

signature?

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Loans in General – Articles 1933-1934, Art 1305; 1318
When an accused is accorded a chance to present evidence on his
behalf but due to his repeated unjustifiable failure to appear at the
trial without any justification, the lower court order's the case
submitted for decision on the basis of the evidence on record, said
judicial action is not tainted with grave abuse of discretion because
in such a case, the accused is deemed to have waived the right to
adduce evidence on his behalf. 18
Furthermore, records show that in this case the defense counsel did
not even bother to appear for the scheduled reception of evidence for
his client on January 7, 1991, notwithstanding the fact that the trial
court did not act upon, much less grant, the Urgent Motion for
Postponement which he filed on January 4, 1991. Lawyers should
never presume that their motions for postponement would be
granted. 19
A motion for continue or postponement is not a matter of right. It is
addressed to the sound discretion of the Court. Action thereon will
not be disturbed by appellate courts, in the absence of clear and
manifest abuse of discretion resulting in a denial of substantial
justice. 20
Motions for postponement are generally frowned upon by Courts if
there is evidence of bad faith, malice or inexcusable negligence on
the part of the movant.21 The inadvertence of the defense of the
defense counsel in failing to take note of the trial dates and in
belatedly informing the trial court of any conflict in his schedules of
trial or court appearances, constitutes inexcusable negligence. It
should be borne in mind that a client is bound by his counsel's
conduct, negligence and mistakes in handling the case. 22
As gleanable from the records:
. . . Attached to the motion is the Order of said court
dated November 19, 1990. Obviously, when the case
was called on December 12, 1990, the counsel for the
accused had already known of the scheduled
hearing before the Metropolitan Trial Court, yet he
agreed to the hearing on January 7, 1991. Counsel's
conduct is not consistent with the thrust of the
Judiciary to expedite the termination of cases under
the Mandatory Continuous Trial . . . 23
A lawyer as an officer of the court is part of the judicial machinery in
the administration of justice. As such, he has a responsibility to assist
in the proper and sound administration of justice. Like the court
itself, he is an instrument to advance its ends and the speedy,
efficient, impartial, correct and inexpensive adjudication of cases. A
lawyer should not only help to attain these objectives. He should
also avoid improper practices that impede, obstruct or prevent their
realization, charged as he is with the primary task of assisting the
court in the speedy and efficient administration of justice. 24
Petitioner invites attention to the Affidavit of Desistance by the Bank
of the Philippine Islands (BPI). This issue raised by the petitioner
cannot be entertained as it was only raised for the first time on
appeal. 25
Considering that the assailed decision is firmly anchored on
prevailing law and established jurisprudence, the Court cannot help
but deny the petition.
WHEREFORE, the petition is DENIED and the decision of the Court
of Appeals, dated May 31, 1995, affirming the judgment of
conviction rendered on January 28, 1991 by the court of origin
AFFIRMED. No pronouncement as to costs.
SO ORDERED.
84
Loans in General – Articles 1933-1934, Art 1305; 1318

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Loans in General – Articles 1933-1934, Art 1305; 1318

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Loans in General – Articles 1933-1934, Art 1305; 1318

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Loans in General – Articles 1933-1934, Art 1305; 1318

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Loans in General – Articles 1933-1934, Art 1305; 1318

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Loans in General – Articles 1933-1934, Art 1305; 1318

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Loans in General – Articles 1933-1934, Art 1305; 1318

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Loans in General – Articles 1933-1934, Art 1305; 1318

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Loans in General – Articles 1933-1934, Art 1305; 1318

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Loans in General – Articles 1933-1934, Art 1305; 1318

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Loans in General – Articles 1933-1934, Art 1305; 1318

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Loans in General – Articles 1933-1934, Art 1305; 1318

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Loans in General – Articles 1933-1934, Art 1305; 1318

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